Could an air-show service provider buy souvenir programs tax-free when it supplied them at no direct charge to exempt sponsors or military bases?

Plain-English summary

An air-show service provider furnished souvenir programs as part of one service contract. The programs carried no direct charge to the nonprofit or military sponsor, and the sponsor kept the proceeds from retail sales.

The Comptroller said an exempt sponsor or military base did not let the provider buy taxable property or services tax-free for use in performing its service. Resale treatment required an actual sale to the sponsor, with the program charge separately stated from the nontaxable service charge; the resale certificate also had to carry the purchaser's permit number. The letter noted that no sales-tax permit was on record for the provider.

If the printer shipped or delivered programs outside Texas for an out-of-state show, the sale to the provider was exempt from Texas tax. Texas tax remained due when the provider took possession in Texas, whether the programs were later used inside or outside Texas, and when programs bought outside Texas were used in Texas.

The attached August 31 letter also said the Texas event sponsor had to collect tax on its Texas retail program sales, and a private contract could not shift the parties' statutory collection or payment responsibility.

What this means for you

Bundling goods into a service contract at "no direct cost" did not establish resale. The invoicing, possession, delivery location, and actual retail-sale chain controlled the outcomes stated here.

Common questions

Did the sponsor's exempt status make the provider's program purchases exempt? No.

What was required for the provider to buy programs for resale? A separately stated sale to the sponsor and a resale certificate validated with the purchaser's permit number.

What if the printer delivered directly outside Texas for an out-of-state show? The sale to the provider was exempt from Texas tax, though the letter advised checking the other state's law.

Who collected tax on Texas retail program sales? The event sponsor selling the programs.

Citations and references

• Comptroller Rule 3.322 — exempt organizations

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9010L1070G10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller October 25, 1990

Dear *:

Thank you for your letter in response to my August 31 letter regarding
taxability of souvenir air show programs.

You stated that all of the services you provide are defined in one con-
tract for which a fee is charged and the air show program is a part of
that agreement. You stated earlier that the contractual agreement be-
tween COMPANY A and the event sponsor calls for the program to be pro-
vided at no direct cost to the sponsor and that all retail sales pro-
ceeds from the souvenir program will remain that of the sponsor. The
programs are provided to non-profit organizations (501(c)(3)) or to
military bases.

The fact that your clients may be exempt organizations as defined in
Rule 3.322 or military bases does not allow you to purchase taxable
items (taxable tangible personal property or services) tax free for use
in providing a service. Taxable items must be purchased for the purpose
of resale to the entity in order for you to issue a resale certificate
to the vendor in lieu of the tax. This means that the charge for items
that are sold to the entity must be separately stated from the charge
for nontaxable services. The resale certificate must be validated with
the permit number of the purchaser. Our records do not show a sales
tax permit issued to you.

If the printer ships or delivers the programs to a location outside
Texas for shows staged outside Texas, the sale to you would be exempt
from Texas tax. However, you will need to check with the taxing au-
thorities in the other state regarding any tax liability. Texas tax is
due on any programs that you take possession of in Texas for use in
Texas or outside Texas and on any programs purchased outside Texas for
use in 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 or need additional information, you may call
toll free 1-800-252-5555 or the regular number 512/463-4666. My exten-
sion is 3-4666. You may write to tax Correspondence, Comptroller of
Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller August 31, 1990

Dear *:

Thank you for your letter concerning the responsibility for the pay-
ment of sales tax on the souvenir air show programs.

You state that you produce air show programs for events and provide
them to the event sponsor at no direct cost. The agreement provides
that all retail sales proceeds remain that of the sponsor and that
the event sponsor is responsible for all fees and sales tax associ-
ated with the retail sale of the souvenir programs. Your purchase
of the souvenir programs from the printer can be bought tax-free on-
ly if you resell the programs. From the facts presented, it appears
that you are not reselling the programs since there is not a direct
charge for them; therefore, the printing charge to you for the pro-
grams is taxable. The event provider is responsible for collecting
and remitting the sales tax on the retail sale of the souvenir pro-
grams that the event provider sells in Texas.

The State is not bound by any contractual provisions between you and
the event sponsor that shift the responsibility to collect and/or
pay sales and use tax.

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

Please feel free to contact me if you have any questions or need more
information, You may call toll free 1-800-252-5555 or the regular num-
ber is 512/463-4666. My-extension is 34666. You may write to tax cor-
respondence, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence Division