Does a company selling discount membership cards owe Texas sales tax or need a permit, and is its list of participating retailers a taxable information service?

Plain-English summary

A company sells preferred discount cards to the public. The card lets the holder buy at a discount from certain retailers, and those retailers pay the company a fee to be listed on directories mailed monthly to cardholders. The company had submitted a sales-tax permit application, saying it needed a permit because it provides "information" through monthly directories and newsletters. The Comptroller (with the Dallas Enforcement office) reviewed whether the company is really providing a taxable information service and needs a permit.

The conclusions:

• The sale of membership to the discount service is not taxable.
• If the list of participating retailers is provided to cardholders as part of their membership, the company is not providing a taxable information service, and no sales tax permit is needed.
• But if cardholders are charged an additional, separate fee for the lists, then the company is providing a taxable information service, the fee for the lists is taxable, and the company must obtain a sales tax permit.

Because the company hadn't supplied the extra information the Comptroller requested about the lists, the Comptroller returned the permit application, to be resubmitted to the enforcement office only if appropriate.

What this means for you

Discount-card and buying-club operators

Selling the membership itself is not taxable, and bundling a directory of participating merchants into that membership does not create a taxable information service or a permit obligation.

The trap: charging separately for the list

Break the list out as its own extra charge and you cross into a taxable information service — the list fee becomes taxable and you'll need a sales tax permit. How you package (and bill) the retailer directory is what decides the tax result.

Common questions

Q: Is selling a discount-club membership taxable in Texas?
A: No. The Comptroller stated the sale of membership to the discount service is not taxable.

Q: Is the list of participating retailers a taxable information service?
A: Not if it is provided as part of the membership. It becomes a taxable information service only if cardholders are charged a separate, additional fee for the list.

Q: Do I need a sales tax permit?
A: Not if the list is included in membership. You do need one if you charge a separate fee for the list, because that fee is then a taxable information service.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rules and statutes: The Comptroller analyzed whether the retailer lists constitute a taxable "information service" but did not cite a specific Tax Code section or Comptroller rule by number in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8807L0903G08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 7, 1988

Dear *:

The sales tax application for ** Corporation, permit
fee, and your letter were received from Carol Dickschat of our
Dallas Enforcement office for review.

As I understand, ** Corporation sells preferred discount
cards to the public. This card enables the holder to purchase at
a discount from certain retailers. The retailers pay *
Corporation a fee to be listed on lists mailed monthly to holders
of the preferred discount cards. You stated that the sales tax per-
mit is needed because *** Corporation provides "information"
in the way of monthly directories and newsletters.

In our telephone conversation, I asked for additional information
about the lists to determine if ** Corporation is, in fact,
providing an information service. To date, I have not received the
information. The sale of membership to the discount service is not
taxable. If the lists of participating retailers is provided to the
cardholders as part of their membership, * Corporation is
not providing an information service and a sales tax permit is not
needed. However, if the cardholders are charged an additional fee
for the lists, * Corporation is providing an information
service and the fee for the lists is taxable. **** Corpora-
tion would be required to obtain a sales tax permit.

Enclosed are the application and permit fee. You may resubmit them
to the enforcement office if appropriate.

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

Please call me toll-free at 1-800-531-5441, extension 3-4666 if you
have additional questions or need more information. You may write
me at the Tax Policy Division.

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy Division

BOB BULLOCK
COMPTROLLER OF
PUBLIC ACCOUNTS

To: Joanne Dieck, Tax Policy
From: Carol Dickschat, 2H53
Subject: Application for permit

Enclosed if a sales tax application for ** Corporation
Financial Corporation. I spoke with you about this approximately
a week ago. This is the company that says they are providing an
information service, and we concluded that they were not.

You had spoken with the company's CPA, *** regarding
this also.

This company charges the public a fee for a "membership card".
This card enables the holder to purchase at a discount from cer-
tain retailers. The retailers pay this company a fee to be
listed on the list furnished to the "members". It is this list
that ** Corporation says is the taxable information.

I am forwarding the application and taxpayers letter to you, be-
cause we last spoke the permit was not necessary. If you have
determined differently, please let me know, or send the applica-
tion back for processing.

If I can be of assistance, please call me.

Thanks,
Carol Dickschat