How did Texas sales tax apply to a nonprofit benefit auction's unique experiences, artwork, and any separately imposed federal luxury tax?

Plain-English summary

A nonprofit organization asked about benefit-auction items. The Comptroller said there was no blanket exemption simply because something could not be bought on the open market. Donated rare artwork remained tangible personal property and was taxed like artwork sold through a gallery.

A winning bid for “dinner with the governor” was not taxable because the organization sold an intangible right, not tangible personal property or a taxable service. The letter also said works of art were taxed like other tangible personal property, with no special tax calculation.

For a luxury car or other item subject to the federal luxury tax described in this 1991 letter, the organization could exclude the federal tax amount when calculating Texas sales tax. The Comptroller directed federal-tax questions to the Internal Revenue Service.

What this means for you

Tax treatment depended on what the auction purchaser actually received. A unique intangible experience was different from tangible artwork, and the letter did not create a broad “not available on the open market” exemption.

Common questions

Was “dinner with the governor” taxable? No; it was an intangible right.

Was rare donated artwork taxable when auctioned? Yes, like other tangible personal property.

Could federal luxury tax be included in the Texas tax base? The letter said it could be excluded when calculating Texas tax.

Who administered the federal luxury tax? The Internal Revenue Service.

Citations and references

The letter did not cite a statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1098A10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

JOHN SHARP
Comptroller April 2, 1991

Dear *:

Thank you for your recent letter, which Harry Rogers
transferred to me for reply. I understand that yours is a
nonprofit organization, exempt from limited sales and use
tax and franchise tax. I have restated your questions
below, followed by answers.

1. When we have an item for sale or auction which could
   not be bought on the open market, is it taxable? The
   example given me was "dinner with the governor".

Answer: There is no blanket tax exemption for items that
"could not be bought on the open market". For example, a
rare work of art from a private collection, donated to your
organization for auction, could not be bought on the open
market. But it would be treated the same for tax purposes
as a work of art offered for sale to the public in a
gallery.

Specifically with regard to "dinner with the governor", you
are not required to collect tax because you are selling an
intangible right to have dinner with the governor, and not
an item of tangible personal property or a taxable service.

2. Are there other tax rules that apply to works of art
   which would make the amount of tax collected different than
   a straight percentage of the purchase price?

Answer: No. Works of art (paintings, sculpture, etc.) are
treated the same as other tangible personal property under
Texas limited sales and use tax law.

3. If an individual purchases at a benefit auction a
   luxury car or other item, do we need to collect luxury tax?

Answer: The federal luxury tax is administered by the
United States Internal Revenue Service. That office should
be able to answer this question. I can tell you that you
may exclude the amount of the luxury tax, if any, from the
sales price of an automobile or other item when you
calculate Texas tax. In other words, we are not imposing a
state tax on the federal luxury tax.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have further questions, feel free to write or call
1-800-252-5555. My direct extension is 3-3889.

Sincerely,
John Christian
Tax Administration