Can a nonprofit still sell tax-exempt concert tickets under Texas's amusement-services exemption if it hires a for-profit company to produce and promote the events?

Plain-English summary

The Texas Comptroller ruled that a charitable nonprofit's concert ticket sales stayed exempt from Texas sales tax even though the nonprofit hired an outside for-profit company to actually promote and produce the shows.

Amusement services (concerts, entertainment, recreation with admission charged) are normally taxable in Texas, but they're exempt when "exclusively provided" by a qualifying nonprofit (like a 501(c)(3), excluding certain social clubs) as long as the proceeds don't benefit any individual outside the charity's public-purpose activities.

The nonprofit here planned to present concerts at an arena, using a for-profit promotion company as an independent contractor to handle production. The Comptroller confirmed a nonprofit doesn't lose the exemption just by hiring outside expertise, provided two things hold: (1) the nonprofit publicly holds itself out as the actual provider of the event (tickets and promotional materials identify the nonprofit, not the promoter), and (2) the arrangement isn't legally a joint venture with the for-profit company. A joint venture requires shared control plus shared losses (not just shared profits) — and here the promoter guaranteed the nonprofit a fixed amount per ticket sold no matter what, with the nonprofit bearing no losses, so there was no joint venture.

The ruling also flags a 2019 statutory wrinkle: Texas added a carve-out (§ 151.3101(b-1)) that limits this exemption specifically for touring theatrical productions (staged plays, musicals, opera, ballet) under certain long-term contract arrangements — but since this nonprofit's events were concerts, not theatrical productions, that carve-out didn't apply here.

What this means for you

Nonprofits that outsource event production to for-profit companies

You can keep your amusement-services tax exemption for ticket sales even while hiring for-profit expertise to run the show, as long as you stay the publicly-identified provider of the event and your compensation arrangement with the promoter doesn't create a joint venture — specifically, avoid agreeing to share losses with the promoter.

For-profit event promoters and producers working with nonprofits

Structure your fee as a guaranteed payment (e.g., a fixed amount per ticket) that doesn't depend on event profitability, rather than a profit/loss-sharing arrangement, if preserving your nonprofit client's sales tax exemption matters to the deal.

Nonprofits presenting touring theatrical productions specifically

Check § 151.3101(b-1) separately — Texas narrowed the amusement-services exemption for touring theatrical productions (plays, musicals, opera, ballet) contracted under specific multi-year, multi-show terms. This ruling's analysis doesn't extend to that carve-out, since it only addressed concerts.

Accountants and tax professionals

The controlling test is the four-factor joint venture definition from Great American Mortgage Investors: community of interest, profit-sharing, loss-sharing, and mutual control. A contract that shares profits but puts all losses on one party is NOT a joint venture under Texas law — that's the fact pattern that saved the exemption here.

Common questions

Q: Does hiring a for-profit event promoter automatically end a nonprofit's amusement-tax exemption?
A: No. The exemption survives as long as the nonprofit still holds itself out as the event's provider and the arrangement with the promoter doesn't create a joint venture (i.e., no shared losses).

Q: What makes an arrangement a "joint venture" that would break the exemption?
A: Under Texas case law, a joint venture requires a community of interest, an agreement to share profits, an agreement to share losses, and mutual control. A guaranteed fixed payment to the nonprofit regardless of event profitability — with the nonprofit bearing no losses — is not a joint venture.

Q: Does this exemption cover touring Broadway-style shows the same way it covers concerts?
A: Not necessarily. A 2019 amendment (§ 151.3101(b-1)) specifically limits the "exclusively provided" exemption for touring theatrical productions under certain long-term contract structures. This ruling addressed only concerts and expressly did not reach that question.

Q: Can I rely on this ruling for my own nonprofit's event arrangement?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific contract and facts and can't be relied on by others, though it illustrates how the Comptroller applies the joint-venture test to nonprofit/for-profit event partnerships.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed)
• Tex. Tax Code § 151.010 (Taxable Item)
• Tex. Tax Code § 151.0101(a)(1) (Taxable Services — amusement services)
• Tex. Tax Code § 151.3101(a)(3) (Amusement Services Exemptions — nonprofit exclusive-provider exemption)
• Tex. Tax Code § 151.3101(b-1), (c)(2) (touring theatrical production carve-out, added by H.B. 1965, effective 2019-09-01)
• 34 Tex. Admin. Code § 3.298(a)(4) (Amusement Services — provider definition)
• 34 Tex. Admin. Code § 3.298(g)(1)(A), (g)(3) (Amusement Services — qualifying 501(c) nonprofits, hiring for-profit production expertise)
• 26 U.S.C. § 501(c)(3), (c)(7) (Internal Revenue Code — exempt organization categories)
• Great American Mortg. Investors v. Louisville Title Ins. Co., 597 S.W.2d 425 (Tex. Civ. App.—Fort Worth 1980, writ ref'd n.r.e.) (joint venture test)
• STAR Accession No. 200908440L (Aug. 20, 2009); 200212650L (Dec. 9, 2002)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202301028L

Original ruling text

January 30, 2023

RE: Private Letter Ruling No. PLR20200107104559

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Dec. 31, 2019, and your follow-up email dated Dec. 12, 2022. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of amusement services presented and provided by a nonprofit corporation operated for charitable purposes.

Facts Presented

** (Taxpayer) is a Texas nonprofit corporation operated exclusively for charitable purposes. Taxpayer is also recognized as an exempt organization under Internal Revenue Code (IRC), Section 501(c)(3).

Taxpayer intends to present events constituting amusement services for its benefit at the ** (the Arena), which the City owns and leases to COMPANY A. Most, if not all, events Taxpayer intends to present at the Arena are concerts.

COMPANY B, a joint venture/general partnership between two non-Texas LLCs, provides management services for facilities like the Arena. In this case, COMPANY B manages the Arena under a Management Services Agreement with COMPANY A. Taxpayer plans to enter into a Promotion Services Agreement (the Promotion Agreement) with COMPANY B to promote and produce the events Taxpayer will present at the Arena. COMPANY B will perform services under the Promotion Agreement as an independent contractor.

Under the Promotion Agreement, COMPANY B may partner with other service providers and enter into other agreements necessary to promote and produce Taxpayer’s events at the Arena. The Promotion Agreement will also provide that Taxpayer will hold itself out as the exclusive provider of the events at the Arena. Event tickets and promotional materials will also identify Taxpayer as the provider of the event.

The Promotional Agreement will also provide that Taxpayer will be entitled to the ticket proceeds and a specific amount per ticket sold, regardless of whether the total proceeds cover the event’s cost. The Promotional Agreement will guarantee that Taxpayer receives this specific amount per ticket, and payment of that amount takes priority over other event costs. In addition, the Promotional Agreement will provide that Taxpayer is not responsible for any losses related to an event promoted by COMPANY B.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Are charges for tickets or admission to events presented and provided by Taxpayer exempt from Texas sales and use tax under Section 151.3101 (Amusement Services Exemptions)?

Ruling: Yes. Charges for tickets or admission to events presented and provided by Taxpayer are exempt from Texas sales and use tax under Section 151.3101(a)(3).

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item).

Amusement services are one of the specifically enumerated services subject to Texas sales and use tax. Section 151.0101(a)(1) (“Taxable Services”). However, amusement services are exempt when “exclusively provided by a nonprofit corporation or association, other than an entity described by [IRC] Section 501(c)(7), … if the proceeds do not go to the benefit of an individual except as part of the services of a purely public charity.” Section 151.3101(a)(3). The provider of an amusement service is the “[t]he person who has legal rights of ownership over, or the legal right to provide, present, or offer, an amusement, entertainment, or recreation that is rendered on a regular basis at a fixed location, and for which admissions are sold.” Rule 3.298(a)(4) (Amusement Services).

Examples of organizations that may qualify for the exemption under Section 151.3101(a)(3) include those recognized as an exempt organization under IRC Section 501(c). See Rule 3.298(g)(1)(A). Taxpayer is recognized as an exempt organization described in IRC Section 501(c)(3) and is an entity described in Section 151.3101(a)(3).

A nonprofit group may hire a for-profit organization to provide the expertise to produce an event without loss of the exemption for events exclusively provided by a nonprofit organization. See Rule 3.298(g)(3). However, the nonprofit organization must hold itself out as the provider of the amusement service and may not be engaged in a joint venture with the for-profit entity.

The Promotion Agreement between Taxpayer and COMPANY B will provide that Taxpayer will hold itself out as the exclusive provider of the events at the Arena. In addition, tickets and promotional materials will identify Taxpayer as the provider of the event.

The Promotion Agreement does not create a joint venture between Taxpayer and COMPANY B. A joint venture between two parties exists when there is:

a community of interest in the venture;

an agreement to share profits;

an agreement to share losses; and

a mutual right of control or management.

See Great American Mortg. Investors v. Louisville Title Ins. Co., 597 S.W.2d 425, 431 (Tex. Civ. App.—Fort Worth 1980, writ ref’d n.r.e.). In short, there must be a sharing of both profit and loss, and the losses must be shared equally or on a percentage basis. STAR Accession Nos. 200908440L (Aug. 20, 2009) and 200212650L (Dec. 9, 2002). However, a contract providing that one party will bear all losses and the profit will be shared does not create a joint venture. Id.

Under the Promotion Agreement, Taxpayer will not share losses with COMPANY B, neither equally or on a percentage basis. Instead, COMPANY B will guarantee Taxpayer receives a specific amount per ticket sold regardless of whether the event is profitable. This guaranteed payment will take priority over any other costs related to Taxpayer’s event. Accordingly, Taxpayer and COMPANY B are not joint venturers and Taxpayer’s sales of tickets to events at the Arena are exempt under Section 151.3101(a)(3).

Please note that in the time since Taxpayer submitted its request for a private letter ruling, the Legislature has amended Section 151.3101 by adding subsection (b-1) regarding touring theatrical productions. See House Bill 1965 (2019). As of September 1, 2019, Section 151.3101(b-1) provides:

(b-1) An amusement service remains exclusively provided under Subsection (a)(3) or (5) if an entity described by Subsection (a)(3) or (5) contracts with another entity not listed in or described by Subsection (a) to provide touring theatrical productions:

subject to a contract with the other entity for:

a term of at least five years; and

at least five presentations each year; and

held at a location either owned by, or leased or licensed for a term of at least one year to, the contracting entity described by Subsection (a)(3) or (5).

A “theatrical production” is a live staged play, musical play, opera, or ballet. Section 151.3101(c)(2). In effect, Section 151.3101(b-1) limits the exemption for amusements provided exclusively by nonprofit organizations, but only in the case of a touring theatrical production.

Taxpayer’s ruling request did not seek guidance on events meeting the definition of “theatrical productions.” Therefore, this ruling is limited to Taxpayer’s concert events.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20200107104559.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.