How did Texas's October 1, 1991 amusement-tax change affect prepaid country-club dues, cart storage, opening fees, party cover charges, and gratuities?

Plain-English summary

The letter addressed the October 1, 1991 start of sales tax on nonprofit country-club amusement charges. Annual fees, October dues, and year-ahead dues that were both billed and paid before October 1 were not taxable even when they covered later service. Clubs had to retain proof of prepayment. October dues paid after the effective date were expected to include tax.

Cart-storage charges after October 1 were taxable. The club could not buy the electricity used to charge members' carts tax-free for resale because it provided a taxable service without transferring care, custody, and control of the electricity to members. STAR later added an alert directing readers to Rule 3.285, as amended in 2017, on that test.

A special fee to open a private club for a reception or golf day was a taxable member-privilege charge when imposed by a nonprofit club on or after October 1, 1991. The letter said for-profit clubs had collected tax on those fees since October 1, 1987.

For a flat New Year's party charge covering food, entertainment, and alcoholic beverages, the club could subtract the alcoholic-beverage amount apportioned and reported to TABC from the sales-tax base. A written statement on the ticket or advertising that applicable sales tax was included satisfied Rule 3.286(d)(3).

A mandatory gratuity of 20% or less on food was excluded when separately stated, identified as a tip or gratuity, and fully distributed to employees who regularly provided the service. Employer retention made the entire gratuity taxable. Booking it as a wage offset was not retention. Calling it a service fee, or applying it to other taxable items, made it taxable; gratuities on alcoholic beverages subject to TABC tax were not taxable.

What this means for you

This ruling is a historical transition guide. It shows the importance of payment timing, documentation, precise fee labels, employee distribution, and separation of TABC-reported alcohol from other party charges.

Common questions

Were dues prepaid before October 1 taxable for later months? No. Could the club buy cart-charging electricity for resale? No. Were special opening fees taxable after October 1? Yes. Could TABC alcohol be removed from the party sales-tax base? Yes as described. Was a monthly service fee treated like a gratuity? No; a service fee was taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.298
• 34 Tex. Admin. Code Rule 3.286(d)(3)
• 34 Tex. Admin. Code Rule 3.285, as identified in STAR's later alert

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9112L1146A05

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

December 16, 1991

Dear ****:

Your letter concerning the taxability of amusement services and
fees as they relate to nonprofit country clubs has been assigned
to me for review and response. I appreciate your patience and
apologize for the delay in responding.

The questions and situations presented in your letter have been
restated below, followed by response:

1. Several clubs bill various charges in advance or on an annual
   basis. The charges were billed and paid prior to October 1,
2. Examples of items billed on an annual basis are annual
   range fees, trail fees, and cart storage. A portion of the
   period paid or will be after October 1, 1991. Does a club have
   to go back and collect tax for The portion of these charges that
   relate to periods occurring on or after October 1, 1991?

RESPONSE: No, charges billed and paid prior to October 1, 1991;
for amusement services provided after that date are not subject
to sales tax.

2. Country clubs normally bill monthly dues a month in advance.
   Will they have to collect and report sales tax on the October
   1991 dues which are billed on the September statements? Will it
   make a difference if the member pays before October 1 the October
   1991 dues which were billed in September?

RESPONSE: Dues for October 1991, paid before October 1, 1991,
would not be subject to sales tax. If a country club bills its
October dues late in September (where it expects that the members
will be paying after October 1, 1991) it would be best to include
the applicable sales tax. If a member, to whom tax had been
charged, paid before the October 1, date, it may be easier to
credit the members' account for the tax collected in error.

3. Another situation faced by a country club relates to the fact
   that some members pay their dues in advance a year at time. If
   these dues were billed and paid before October 1, 1991, does the
   club have to go back and collect tax for the portion of these
   charges that relate to periods occurring on or after October 1,
   1991? What effect would it have if the member prepaid their dues
   a year in advance but the club continued to show a monthly dues
   amount on their monthly statement?

RESPONSE: Tax would not be due on membership dues prepaid by a
member before October 1, 1991, even if the club continues to show
the monthly dues on the members monthly statement. The club
should retain documentation reflecting that the dues were paid
prior to October 1, 1991.

4. Beginning October 1, 1991, it is understood that nonprofit
   clubs will have to start charging sales tax on cart storage
   charges to their members. Included in the flat cart storage
   charge is a charge for a place that the member can store their
   cart and a charge for electricity the member uses to charge the
   battery on the cart. Since the club will have to collect sales
   tax from the member on the cart storage charge, will they be
   allowed to purchase the electricity supplied to the member tax
   free?

RESPONSE: The electricity supplied by the club is commercial
use. The club is providing a taxable service, it is not
transferring care, custody, and control of the electricity to
the customer.

5. Most country clubs are closed on Mondays. If a member asks
   that the club be opened for a special function, a special opening
   fee is charged. Please advise if this charge is taxable under
   the following circumstances:

a. The club is opened for a special party function such as a
wedding, wedding reception, anniversary party, etc.

1. Before October 1, 1991
2. After October 1, 1991

b. The club is opened for a golf day

1. Before October 1, 1991
2. After October 1, 1991

RESPONSE: The special opening fee for receptions or golf days is
considered to be an assessment or fee charged to members for a
special privilege (not available to nonmembers) in a private
club. (See section (*b) of the enclosed copy of Rule 3.298,
Amusement Services). Nonprofit country clubs must collect and
report tax on these fees that are charged to members on or after
October 1, 1991. For-profit clubs have been required to collect
and report tax on these fees since October 1, 1987.

6. Clubs have a new year's party where a flat cover charge is
   made. The cover charge includes food, entertainment, and
   alcoholic beverages. A portion of the cover charge is credited
   in the club books to alcoholic beverage sales based upon the
   amount of alcohol consumed at the party. The club is required to
   report gross receipts tax to the TABC on the calculated alcoholic
   beverage sales. Is the club required to collect sales tax on the
   total cover charge or can they reduce the amount that sales tax
   is collected on by an apportioned alcoholic beverage sales
   amount?

If the club stated to the member that the flat new year's party
cover charge included the applicable sales tax could they exclude
the calculated alcoholic beverage sales from the amount that
sales tax is reported on?

EXAMPLE

Total New Years part cover charge - $5,000.00
Less Alcoholic beverage sales - $1,787.00
Charges excluding Alcoholic Beverages - $3,213.00
Tax included in above amount ($3,213/1.0825 * .0825) - $244.87
Taxable amount to report sales tax on - $2,968.13

RESPONSE: The club may reduce the cover charge amount, that
sales tax is collected on, by the amount apportioned as (and
reported to TABC) alcoholic beverage sales. A statement in
writing (either on the admission ticket, flyer advertising the
event, etc.,) indicating that applicable sales taxes on taxable
items are included in the sales price will be sufficient to
satisfy the requirements of Rule 3.286(d)(3).

7. Some clubs charge a flat service fee each month to the
   members instead of adding the normal 15% gratuity to each ticket.
   the amount is used to help pay wages and is sometimes shown on
   the financial statements as an offset to wages or is credited to
   the wage expense account. Will nonprofit clubs have to collect
   sales tax on this monthly service fee charge?

RESPONSE: Reasonable (20% or less) mandatory gratuities applied
to food sales are specifically excluded from the sales price of
taxable items if the gratuity charge is separately stated,
identified as a tip or gratuity, and the full amount of the
mandatory gratuity charge is disbursed to employees who
customarily and regularly provide the service upon which the
charge is made. If any portion is retained by the employer, the
entire gratuity will be subject to sales tax. Crediting the
gratuity as an offset to wages or a wages expense account does
not constitute retention by he employer. If the charge is
identified as a service fee, the charge is taxable. Gratuities
applied to alcoholic beverages subject to the TABC tax are not
taxable. If the "flat service fee" is also assessed on other
taxable items, the fee is taxable.

This opinion is based on the facts presented. Other facts though
similar may provide a different result.

If you have other questions or need more information, you may
call 512/463-4600, or 1-800-252-5555 from outside Austin. You
may write to Tax Administration Division.

Sincerely,

Gilbert Zamora
Tax Administration Division