Ezel / Tax Rulings / TX
TX 8811L0917G03 Sales and/or Use Tax (State,Local,MTA) 1988-11-02

Was a fee for a discount-service membership card taxable, and who collected tax on members' discounted purchases?

Short answer: The membership fee was not taxable or an amusement charge. Participating merchants collected tax when members bought taxable items at the discounted price.

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This page answers the general question as of 1988. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1988
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Members paid a fee for a card entitling them to discounts or rebates from participating retailers, vacation tours, and travel agents. The membership company kept only the fee, and all discounts or rebates went to members.

Texas said the membership sale was not taxable and specifically was not an amusement service. When a member bought a taxable item, the participating merchant was the seller and collected tax on the member's purchase price.

Common questions

Was the membership fee taxable? No.

Was it an amusement service? No.

Who collected tax on a discounted taxable purchase? The participating merchant.

Source

Original ruling text

November 2, 1988

Dear *:

I an responding to your letter of October 28, 1988, requesting clarification regarding the taxability of membership fees in a membership discount service.

Your letter explained that you charge a fee to your members and in return, they receive a club card which entitles them to discounts or rebates from participating merchants. These merchants include all types of retailers, vacation tours, and travel agents. No coupons are used and all rebates and discounts go to the members. *** receives only the membership fee as income.

You are correct; selling memberships to a member discount service is not a taxable transaction, specifically not an amusement service. The price each member pays for items purchased from the participating merchants is subject to tax when the member is purchasing a taxable item. In this situation the participating merchant is the seller and is responsible for the collection and remittance of any sales or use taxes due on the transaction.

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

You may write me at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division

Tax Correspondence

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