Could a nonprofit country club obtain a state refund of tax collected on nontaxable initiation and membership fees before returning or crediting the tax to members?

Plain-English summary

The nonprofit country club had collected tax on initiation and membership fees that the Comptroller had already determined were nontaxable.

Before Texas would refund the remitted tax to the club, the club had to return the tax to each member or, with the member's permission, credit the member's account. Either method required written acknowledgment that the amount was a refund of sales or use tax paid in error.

After refunding or crediting the members and obtaining the documentation, the club could resubmit its state refund request.

Common questions

Could the club receive the state refund first? No.

Could it use account credits? Yes, with purchaser permission and written acknowledgment.

What rule governed? Rule 3.325(b).

Citations and references

• 34 Tex. Admin. Code Rule 3.325(b)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8911L0967G01

Original ruling text

November 14, 1989

Dear ***

Your request for refund has been forwarded to me for approval. As
I stated in my letter dated July 27, 1989, tax is not due on initiation
and membership fees charged by a nonprofit organization. You
stated that your organization is a nonprofit country club.

You have sent a request for refund which reflects sales tax collected
totaling $***, per your calculations. You enclosed detailed
records of the member's name, address, membership number, and the
amount of tax each member paid over the 22 month period. You also
stated that upon receipt of this refund you would expect to issue
special checks or to credit the member's individual account.

I am enclosing information which explains that before the seller
can obtain a refund of taxes remitted to the state, the seller
must refund the tax to the purchaser. Please see Rule 3.325 (b),
enclosed. Other information is also enclosed that explains the
required refund procedure.

The sales taxes remitted to the state will not be refunded to the
seller until these taxes have been refunded to the purchaser (person
who paid the tax) or the seller has credited the tax to the account
of the purchaser. Either of these actions must be accompanied by
written acceptance by the purchaser that the credit or refunded amount
is recognized as a refund of sales or use taxes paid in error.

Once you have either (1) refunded the taxes collected in error to
the purchaser or (2) with the purchaser's permission credited the
taxes collected in error to the purchaser's account and (3) obtained
the necessary documentation from the purchaser for these refunds, you
may resubmit the refund request. Again, this agency will not refund
the taxes collected in error to the seller until the seller has refunded
these taxes to the purchaser (person who actually paid the tax).

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, you may write to Tax
Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division