Was a handling fee taxable when a company only marketed vacation packages and referred interested clients to a travel agency?

Plain-English summary

A company marketed vacation packages for travel agencies. It contacted potential clients, explained the offer, mailed information to interested prospects, and then left the clients to contact the travel agency and make their arrangements. The company had no further client contact and charged only a handling fee.

On those facts, the Comptroller said the handling fee was not connected to the sale of taxable items or taxable services and therefore was not taxable.

What this means for you

The conclusion depended on the company's limited marketing and referral role. A business that also sold tours, admissions, transportation, lodging, or other items would have materially different facts not decided by this letter.

Common questions

Was the handling fee taxable? No.

Why? The Comptroller found it was not connected to taxable items or taxable services.

Did the company itself make the travel arrangements? No. Interested clients contacted the travel agency directly.

Did the letter decide sightseeing tours or transportation services? No. Those topics appear in STAR's caption, but not in the operative request and response.

Citations and references

• Comptroller Rule 3.298 — Amusement Services, enclosed for reference.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0804C13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 2, 1987

Dear ***:

Thank you for your letter of March 23, 1987, concerning the taxability of
your business activities.

Question: CORP ABC is in the business of marketing vacation packages for
travel agencies. We contact potential clients, explain the vacation
offer, and if they express an interest, we mail the information to them,
then they contact the travel agency to make travel arrangements. We have
no further contact with the client.

Since our only charge to the client is a handling fee for this service,
we would like to confirm in writing what your agent told CORP ABC by
telephone.

Response: Although I can't confirm the information you were given by
telephone since you did not give the name of the person you spoke with
about your situation, it appears that the handling fee is not connected
to the sale of taxable items or taxable services. The handling fee is,
therefore, not taxable.

I have included a copy of Rule 3.298 Amusement Services for your
reference.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Julie Pesl
Tax Policy Section
Tax Administration Division