Were lump-sum party, dinner, and overnight yacht-cruise packages taxable when the boat traveled on a border lake?

Plain-English summary

A yacht operator offered party cruises, dinner cruises, and overnight bed-and-breakfast cruises for one lump-sum price that included the cruise and meals. The boat departed from a Texas marina on a lake bordering another state and spent at least half its time on that other state's waters.

The Comptroller treated every package as a taxable amusement service under Rule 3.298. The exception for cruises lasting more than 24 hours and traveling offshore beyond Texas territorial waters did not apply because these trips remained on the border lake rather than going offshore.

State sales tax applied to the entire lump-sum charge. Under the letter's 1989 local-tax treatment, the operator also had to collect tax for each taxing city, county, MTA, or CTD covering the location where passengers boarded.

Common questions

Were party, dinner, and overnight packages taxable? Yes, all three.

Did spending half the trip in another state's part of the lake make the cruise nontaxable? No.

Did the offshore-cruise exception apply? No, because the cruises were not offshore beyond Texas territorial waters.

What amount was taxable? The entire lump-sum cruise-and-meal charge.

Where did the letter source local tax? To the passenger boarding point, under the historical rules described in the 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/8908L0953E01

Original ruling text

August 25, 1989

Dear **:

Thank you for your inquiry regarding the taxability of a yacht chartering
service.

You state that your client operates a yacht chartering service on a large lake
located on the border of Texas. The yacht is operated out of a Texas marina,
however, at least 50% of its time on the water is within another state. Your
client offers three "packages":

1. Party cruises
2. Evening "dinner cruises"
3. Overnight "bed and breakfast" cruises where the boat will anchor overnight
   in various coves in Texas and the other state. This type cruise offers both an
   evening and morning meal.

I understand that the "packages" that your client offers involve one lump-sum
charge for the cruise and meals.

Your client's charge for each "package" is taxable because the cruises are
taxable amusement services as defined in subsection (a)(1)(D)(x) of the
enclosed Comptroller's Rule 3.298 (Amusement Services). Although cruises which
last longer than 24 hours and extend offshore outside Texas territorial waters
are nontaxable as indicated in Rule 3.298(a)(2)(G), your client's cruises
aren't offshore outside Texas waters.

Therefore, your client must charge state sales tax on the entire charge for a
cruise. In addition, your client must charge local tax based on where the
passengers board the yacht. That is, if the boarding point is located in a
city, county, or metropolitan transit authority (MTA)/city transit department
(CTD) which imposes tax, your client must collect tax for each taxing
jurisdiction. Accordingly, I have also enclosed Sales Tax Rates in Texas (July,
1989) which lists the tax rates for various city, county, and MTA/CTD
jurisdictions throughout Texas.

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

If you have any questions, please contact Tax Correspondence. You may call toll
fee 1-800-2552-5555, or our regular number is 512/463-4600. My extension is
3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence