Which food, merchandise, refreshments, rental, and admission charges of an audited museum were taxable in Texas?

Plain-English summary

Food and nonalcoholic drinks sold at one annual fundraising event could be exempt if the event lasted no more than one week, was exclusively sponsored by a nonprofit volunteer organization, used no caterer or prepared-food retailer, used only volunteer preparation and service, and did not compete with a food-and-drink retailer at the same event.

Alcoholic beverages, T-shirts, arts and crafts, gift items, and similar merchandise were not covered. Records had to separate exempt food-and-drink receipts from taxable categories, and only one similar annual fundraising event could qualify.

The museum owed tax on taxable items bought for the event that were not resold or otherwise exempt. Refreshments charged to groups renting the museum were taxable. The museum rental itself was nontaxable if established in the records and should be separately stated from refreshments. Museum and arts-center merchandise sales were taxable, while public admission charges were not.

Common questions

Could every fundraiser qualify? No. Only one annual event meeting all listed conditions.

Were alcoholic beverages exempt? No.

Were museum-shop items taxable? Yes.

Were public admission charges taxable? No.

How should museum rental and refreshments be billed? Separately, because refreshments were taxable and the museum rental was not.

Citations and references

• Texas Comptroller Rule 3.293(f)(3) — cited for taxable purchases made for the fundraiser's use.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8511L0675E11

Original ruling text

November 6, 1985

Dear ***:

Thank you for your recent letter regarding your organization's
responsibilities in collecting tax on various items sold. Because
you are currently being audited and we have had several telephone
conversations, I am incorporating some of the information previously
discussed into this letter.

Sales tax is not due on sales of food and drinks (i.e., iced tea, sodas,
coffee) at a fund-raising function such as your Fall Fest if the following
criteria are met:

• The function is an annual event.

• The function does not exceed one week.

• The function must be a fund-raising project and exclusively
  sponsored by a non-profit, volunteer organization.

• The food and drinks cannot be purchased from a caterer or other
  type of prepared-food retailer.

• The food and drink sales must be noncommercial in every respect;
  no one shall be hired to prepare or serve the food and drinks.
  Every aspect of the sale must be on a volunteer basis except the
  purchase of the foods and drinks for further preparation.

• Under no circumstances is the exemption to apply if the volunteer
  sales are in competition with a retailer who is required to collect
  tax on food and drink sales at the same function.

Any sales of alcoholic beverages are not covered by this exemption.
Neither are sales of T-shirts, arts and crafts, gift items, etc.

In order to claim the above-outlined exemption, your records must clearly
establish what amounts raised cover sales in the exempt category versus
the taxable categories.

This exemption applies only to one annual event. If multiple events of a
similar fund-raising nature are held during the year, only one would qualify
for exemption.

Incidentally, although many items purchased for your organization's use
are exempt, tax must be paid on taxable items purchased for the Fall Fest
that are not resold or that are not otherwise exempt (please see section
(f)(3) of the enclosed Rule 3.293). This is because fund-raising, although
necessary to help finance your operations, does not relate to the exempt
activities for which your organization was formed.

Turning to the question of providing refreshments to groups renting the
museum, any charge for these refreshments is taxable. During the audit
period, if the auditor can establish from your Internal records the
museum rental charge, no tax will be assessed on this. You are advised to
separate the charge for the museum versus the refreshments on your future
billings to renting parties.

As we discussed, sales of items from your museum and arts center are
taxable. There is no tax due on any admission charge you may make to the
public to enter your facility.

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, call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section
Tax Administration Division