Could a Texas tax-exempt organization buy health-club memberships without sales tax for children in its program?

Plain-English summary

A federally recognized Section 501(c)(3) program had Texas franchise-tax and limited sales-and-use-tax exemptions. The Comptroller said it could buy health-club memberships as exempt amusement services when the memberships related to its purpose.

The organization itself had to pay for the purchase and give the seller a properly completed exemption certificate. A purchase made by a parent or guardian did not become exempt merely because the organization had given that person money for a child in the program.

What this means for you

An exempt organization's sales-tax status did not automatically follow funds after they were transferred to an individual. The exempt entity had to be the purchaser, the item had to relate to its purpose, and the certificate had to accurately describe the seller-specific purchase.

Common questions

Were program-related health-club memberships exempt? Yes, when the exempt organization paid for them and issued a properly completed exemption certificate.

Could a parent or foster parent make the exempt purchase? No. The letter said a purchase by the individual did not qualify even if the organization had allotted money for the child.

Did the organization's Section 501(c)(3) status exempt hotel stays? No. The letter expressly said that status did not qualify the organization for a hotel-occupancy-tax exemption.

Citations and references

• Comptroller Rule 3.298(g)(6), concerning amusement services.
• Comptroller Rule 3.322(f)(1), concerning exempt entities.
• Comptroller Rule 3.287, concerning exemption certificates.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1043B04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller August 31, 1990

Dear *****:

This is in response to your letter dated August 16, 1990 regarding tax
exemptions ** Program has been granted.

I apologize for any inconvenience you may have encountered since your
letter dated March 15, 1990. The computer system this office has imme-
diately records and tracks all mail received. Our records do not show
that letter was ever received by this office.

The ** Program was granted an exemption from the state fran-
chise tax effective November 1, 1984. An exemption was granted from the
limited sales and use tax on April 18, 1985. The limited sales and use
tax exemption applies to purchases by the exempt organization that relate
to the organization's purpose. These are the only exemptions available
(at this time from this agency) for an organization which has the federal
determination 501(c)(3).

Organizations with a 501(c)(3) exemption do not qualify for an exemption
from the hotel occupancy tax; all other items listed on the exemption
certificate qualify for exemption from sales and use tax if they relate
to the purpose of the exempt entity. See Rule 3.322 (f) (1).

Your organization may purchase an amusement service (health club member-
ship) tax free by issuing a properly completed exemption certificate to
the seller. The membership must be paid for by the exempt entity (i.e.,
not by a parent/guardian of a child in your program). If, for example,
The **** Program allots a certain amount of money to foster
parents, and the foster parent purchases items for the child, the pur-
chase does not qualify for exemption. Any item that qualifies for ex-
emption must be purchased by the exempt entity. See Rule 3.298(g)(6)
on amusement services and Rule 3.322 on exempt entities.

Please refer to the enclosed Rule 3.287 on exemption certificates for
the proper completion of the form. The certificate enclosed with your
letter not only is on an outdated form, but it is not properly completed.

Description of items must accurately describe the items purchased from
the selling vendor. The certificate cannot collectively state all pur-
chases from all vendors. I have enclosed a current exemption certificate
for your use.

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 additional information, you may call me
toll free at 1- 800- 252- 5555, extension 5-0330. The regular number is
512/463-4600, or write Tax Correspondence.

Sincerely,
Bettie U. Peterson
Tax Correspondence Division