When were Texas tournament entry fees nontaxable, and were spectator admissions taxable?

Plain-English summary

The Texas Comptroller said a tournament participant's entry fee was not taxable if either of two tests was met:

• the fee substantially exceeded normal facility-use charges, the person paid to compete, and part of the fee covered contest costs and prizes; or
• the person would not normally use or pay for the facility except to participate in the contest.

The letter's tennis example charged $50 for a three-hour tournament while normal court use cost $10 per hour. Because the $50 also covered prizes, food, drinks, and other contest expenses, the entry fee met the first test and was nontaxable.

Spectator admission charges to watch tournaments were taxable. When a contest involved taxable entry fees, items transferred as an integral part of the amusement service—such as trophies, food, and drinks for players—could be purchased tax-free for resale by the club or facility.

What this means for you

Tournament organizers

Do not treat every participant fee alike. Compare the entry charge with ordinary facility use and document how the fee funds competition costs and prizes.

Sports facilities

A facility used only by people participating in contests could satisfy the letter's second nontaxability test.

Accountants and tax professionals

Separate participant entry fees from spectator admissions. The latter were taxable even when a qualifying participant fee was not.

Common questions

Q: Were all tournament participant fees nontaxable?
A: No. They had to meet one of the two tests stated in the letter.

Q: Was the $50 tennis-tournament fee taxable?
A: No. It exceeded ordinary court charges and also covered contest prizes and expenses.

Q: Were spectator admissions taxable?
A: Yes.

Q: Could organizers buy trophies, player food, and drinks for resale?
A: Yes, when those items were transferred as an integral part of a tournament involving taxable entry fees.

Citations and references

• Proposed administrative rule on amusement services (enclosed with the letter; no rule number stated)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8411L0630C13

Original ruling text

November 19, 1984

Dear ***:

Thank you for your letter of November 5, 1984, regarding the taxation of
tournaments.

Entry fees to tournament participants will not be taxable if:

1. the fee substantially exceed what would normally be paid for using
   the facility and a person is paying to compete in a contest, and part of
   the fee goes toward the cost of conducting the contest and for prizes;

or

2. an individual would not normally use the facility, or pay a fee
   except for the purpose of participating in a contest.

For example, if a tennis tournament is held and an entrant is charged a
$50.00 entry fee for a three hour tournament. This fee covers tournament prizes as
well as other expenses for the contest including food and drink for participants. The
regular court fee for someone to play tennis at this facility is $10.00 per hour. In
this example the entry fee would not be taxable because it meets the requirements set
out in #1 above.

Those sports facilities that only allow persons to play who are participating in a
contest or tournament would be allowed to not charge tax based on the requirement
in #2 above.

Admissions fee to spectators to view tournaments are taxable. If a contest involves
taxable entry fees, items transferred as an integral part of the (amusement service)
tournament, such as trophies, food and drink for players, may be purchased tax-free
with a resale certificate by the club or facility conducting the tournament.

I am enclosing the proposed administrative rule on amusement services as well as
a list of taxable charges made at country club and sporting club facilities.

This opinion is based upon the facts you presented. If there are additional or
different facts, this opinion may change.

Please feel free to contact us if you have additional questions. You may write us, or
call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section
Tax Administration Division