Did a nonprofit trade association have to collect Texas sales tax on correspondence-course tuition or the course binder, test, and certificate?

Plain-English summary

A nonprofit international trade association offered a correspondence course by sending each enrollee an information binder and test, then issuing a certificate after successful completion. The association was exempt from Texas franchise tax under I.R.C. § 501(c)(6) but not from Texas sales and use tax.

The Comptroller said no tax was due on tuition or enrollment fees. If the association separately charged for course materials, that materials charge and its shipping and handling were taxable. The association could then use a resale certificate to buy the materials actually sent to participants.

If tuition and materials were not separately stated, the participant owed no sales tax on the bundled course charge. Instead, the association had to pay tax on all materials it provided.

The letter separately noted that the association's sales-tax permit had expired because of $50 in unpaid permit fees and directed it to resolve the account if that remained outstanding.

What this means for you

The billing structure determined who bore tax on physical course materials. Separately stating materials created a taxable sale to the student and allowed resale treatment upstream; bundling them into tuition made the course provider the taxable consumer.

Common questions

Was tuition taxable? No.

Were separately stated course materials taxable? Yes, including shipping and handling.

Could the provider buy those materials for resale? Yes, when they were separately charged and actually sent to participants.

What if the materials were bundled into tuition? The participant paid no tax, but the provider paid tax on the materials.

Citations and references

• I.R.C. § 501(c)(6) — the association's federal nonprofit classification

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9107L1121A09

Original ruling text

July 19, 1991

Dear **:

Thank you for your recent letter. As I understand it, ** is a
non-profit international trade association, exempt from payment of Texas
franchise tax under Internal Revenue Code Section 501 (c)(6), but not eligible
for exemption from payment of Texas sales and use taxes. You offer a
correspondence course, in which you send to each enrollee a binder of
information and a test. Upon successful completion of the course, you send a
certificate to the enrollee. You ask whether you are required to collect tax
on the tuition or enrollment fee for the course.

No tax is due on the tuition or enrollment charge to the course participants.
Tax is due on any separately stated charge for the course materials themselves,
including shipping and handling charges. If you separately state the materials
charge, then you may issue a resale certificate to purchase, tax-free, the
materials that are actually sent to the course participants. If you do not
separately state the materials charge from the tuition for the whole course,
then no tax is due from the participant, and you are required to pay tax on all
course materials you provide.

In the course of preparing this reply, I found that our records indicate that
your sales tax permit has expired due to unpaid permit fees in the amount of
$50.00. Feel free to contact you local Comptroller's enforcement office at
(214) 289-3400, or any other Comptroller's field enforcement office, or our
toll-free number at 1-800-252-5555, to discuss this matter. If it has been
resolved by the time you receive this letter, please disregard this notice.

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