Were a sports league's team entry fees and $10 player passes taxable as amusement services or sales of tangible personal property?

Plain-English summary

A sporting-facility operator charged each team $400 to enter an eight-week league season. The charge covered weekly games, the facility, lighting, officials, balls and equipment, scoring, statistics, standings, and trophies for winning teams and players.

The Comptroller said the charge fit Rule 3.298(c)'s definition of a nontaxable entry fee rather than a taxable amusement service. The operator nevertheless owed tax on trophies and other materials used to provide the competition.

The operator also sold $10 player passes for a nonprofit sports association, retaining $3 to $6 per pass. A pass bought association membership and the right to participate in governed league competitions. It was not a sale of tangible personal property and did not grant admission to an amusement service, so the $10 charge was not taxable.

The association owed tax to its suppliers on the full charge for membership cards, applications, and related printed materials; it could not buy those items tax-free for resale.

What this means for you

The letter distinguished a participation or membership right from admission to an amusement. It also separated nontaxable participant charges from the taxable materials consumed to provide the program.

Common questions

Was the $400 team fee taxable? No. It was a nontaxable entry fee under Rule 3.298(c).

Was the $10 player pass taxable? No. It represented membership and participation rights.

Did the facility owe tax on trophies? Yes.

Could the association buy membership cards tax-free for resale? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.298(c) — nontaxable entry fees
• I.R.C. § 501(c)(3) — federal nonprofit status of the sports association

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9107L1121A01

Original ruling text

July 22, 1991

Dear **:

Thank you for your recent letter. As I understand it, your
questions involve taxability of certain sales and/or services provided by a
corporation ("C"). I have reiterated the essential facts below, followed by
answers.

Situation 1: C Charges a "league/tournament entry fee" of
$400.00 to each team participating in an eight-week league season competition
(sport unspecified) organized and conducted by C. For its money, each team may
play in one game per week during the eight-week season. You demonstrated in
your letter that these fees amount to the equivalent of $ 133.33 for each hour
the entrants use the facility. This compares to C's ordinary "field rental
fee" of between $ 40.00 and $ 45.00 per hour to anyone wishing to rent its
facility for private uses such as parties or team practices.

In consideration for the "league/tournament entry fee", C
provides the facility for the game, field lighting, scheduling of officials,
balls and other equipment, and keeps score, statistics and league standings.
At the end of the competition, the top team(s) collectively and each member
individually receive trophies (approximately $ 12,000 worth of trophies
annually) furnished by C at no additional charge to the recipients.

Question 1: Is the "league/tournament entry fee" subject to
tax as a charge for an amusement service?

Answer 1: No. This fee fits the definition of an "entry fee"
that is not subject to tax according to Rule 3.298 (c).

C owes tax on the trophies and other materials used to
provide the described services.

Situation 2: At its sporting facility, C sells for $ 10.00
apiece "player passes" created by an Association. The Association governs a
certain unspecified competitive sport in north Texas. The Association is a
non-profit corporation exempt from federal tax under Section 501 (c)(3) of the
Internal Revenue Code. A "player pass" entitles the holder to participate in
the organized competitions governed by the Association. C (and other owners of
similar facilities in the area) sells the "player passes" by agreement with the
Association. In consideration for selling the passes at its facility, C
retains a portion of the $ 10.00 fee. The amount retained varies from about $
3.00 to $ 6.00, depending on the type of pass issued.

Question 2: Is the $ 10.00 fee charged by C to the purchaser
of "player passes" taxable?

Answer 2: No. The ultimate purchaser of the "player pass" is
not buying tangible personal property as such, but rather is buying membership
in the Association, which gives the member the right to participate in league
competition. The transaction between C and the purchaser of a "player pass" is
in essence not a sale of tangible personal property. Further, the transaction
does not constitute the sale of an amusement service, because the consideration
paid for membership in the Association does not result in the member gaining
admittance to any amusement services.

The Association owes tax to its supplier(s) on the total
charge for producing the membership cards and related printed materials
(applications, etc.). These items may not be purchased tax-free for resale.

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 1-800-525-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration