How did Texas tax discount-travel memberships, amusement components, travel certificates, and promotional giveaways?

Plain-English summary

A promotions company worked with a business selling discount-travel memberships and travel packages, including packages companies used as marketing incentives.

The annual membership fee bought an intangible right to receive travel discounts and was not a taxable amusement service. A travel certificate received the same nontaxable treatment unless it represented an admission ticket or voucher for an amusement service.

For amusement services in a travel package, the travel agent had to collect tax when the amusement charge was separately stated or the surrounding additional costs were inconsequential. If the amusement charge was not separately identified from the overall package price, the agent paid tax on the amusement service and did not charge the customer tax on the package under Rule 3.298(d).

The promotions company had to pay or accrue tax on its purchase price for printed membership and travel certificates delivered to Texas customers, advertising novelties, collateral materials, and premiums. Because those items were given away rather than resold, they could not be bought tax-free with a resale certificate.

What this means for you

An intangible travel-discount right was not itself an amusement service. Tax treatment changed for actual amusement components and for physical promotional materials consumed by the promoter.

Common questions

Was the annual discount membership taxable? No.

Was a travel certificate taxable to the customer? No, assuming it was not an amusement admission ticket or voucher.

Who handled tax on a separately stated amusement charge? The travel agent collected it from the customer.

What if the amusement charge was bundled into the package? The agent paid tax on the amusement service and did not charge tax to the customer.

Could the promoter buy giveaway items for resale? No. It had to pay or accrue tax on its purchase price.

Citations and references

• 34 Tex. Admin. Code Rule 3.298(d) — amusement services included in travel packages

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1113E11

Original ruling text

May 22, 1991

Dear **:

Thank you for your recent letter. As I understand it, your company works in
conjunction with ** (a division of *) to design promotions
that will generate leads, buyers or donations. *** sells discount
travel packages to its members, who pay an annual membership fees, and to
companies who offer the travel packages as marketing incentives to potential
customers.

You use the following aids in your business:

• Travel certificates-** Membership
• Advertising specialties and novelties such as t-shirts, pens, pencils, etc.
• Collateral materials such as door hangers and scratch cards
• Premiums such as cameras, fans, water purification systems, etc.

You ask which of the above items are subject to tax, and who is responsible for
paying the tax.

** are not subject to Texas tax. The membership fee purchases the
intangible right to receive discounts on travel. The Membership itself is not
a taxable amusement service. Like any other travel agent, **** is
required to collect tax on charges for any amusement services sold with its
travel packages, if those charges are separately stated (or if the surrounding
additional costs are inconsequential). If the charges for amusement services
are not separately identified from the price of an overall travel package, then
the travel agent must pay tax on the amusement services and would charge no tax
to the customer. Rule 3.298(d).

Your company should pay tax to the suppliers of printed items (including
Membership Certificates such as the example you enclosed) and other such
materials that you give to your customers. Your company should accrue Texas
use tax on your purchase price of such items distributed in Texas if the
suppliers fail to collect the tax from you.

The Travel Certificate would be treated the same way as the Club Memberships.
The charge to the customer is not taxable (assuming the Travel Certificate does
not represent an admission ticket or voucher to an amusement service). Your
company is responsible for paying or accruing tax on your purchase price of the
printed Certificates and other such printed items delivered to Texas customers.

Your company must also pay or accrue tax on its purchase price of give-away
items, including advertising specialties and novelties (t-shirts, pens,
pencils, etc.), collateral materials such as door hangers and scratch cards,
and premiums (cameras, fans, water purification systems, etc.). These items may
not be purchased tax-free with a resale certificate, because they are being
given away, and not resold to customers.

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 me at 1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration