Was a $35 defensive-driving class held at a comedy club subject to Texas sales tax?

Plain-English summary

The comedy clubs hosted daytime defensive-driving classes outside their normal operating hours. Students paid $35, the clubs kept $13 for providing the class, and the rest covered class costs. The instructors were comedians who sometimes used skits.

The Comptroller said the fee for a bona fide defensive-driving course was not taxable. The clubs could refund tax collected from students and then seek a Comptroller refund or take a credit; they could also claim relief if they had remitted tax without collecting it.

Food and drink sold to students remained taxable. If the class and refreshments were bundled for one price, the entire charge was taxable, so taxable food and drink had to be separately stated.

What this means for you

The venue and comedic teaching style did not make the instructional fee taxable. Bundling taxable refreshments with the class, however, changed the tax result for the full charge.

Common questions

Was the $35 class fee taxable? No, because it was a bona fide course of instruction in defensive driving.

Could the clubs recover tax paid in error? Yes, after refunding tax collected from students, the clubs could seek a refund or take a credit. Relief was also available when the clubs remitted tax they had not collected.

What if food or drinks were included? Separately stated food and drink charges were taxable; one combined class-and-refreshment charge made the entire amount taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.325 (refunds), enclosed with the original response

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9204L1166D13

Original ruling text

April 3, 1992

Dear **:

Thank you for your letter concerning defensive driving classes
held at the two COMPANY X business locations.

According to our phone conversation, the classes are held during
the day outside the normal hours of operation. The individual
students pay a fee of $35 for attending the defensive driving
class. The club retains $13 for providing the class and the rest
goes to cover the costs of the class (certificates, etc.). The
students are generally taking the class in lieu of paying fines
for tickets. The class is taught by comedians who sometimes use
skits to teach defensive driving principles.

The fee for a bona fide course of instruction in defensive driving
is not taxable. The clubs may refund to the students any tax that
was collected in error on the fee for the class. Once the tax is
refunded to the students, the club may in turn obtain a refund
from the Comptroller or take a credit on a current return for the
tax collected and remitted in error. A refund or credit is also
allowed if the clubs did not collect tax from the students, but
still remitted to the Comptroller tax on the total receipts for
the classes. Please refer to the enclosed Rule 3.325 regarding
refunds for additional information.

Of course, the clubs should charge tax on any food or drink that
are sold to the students. The total amount would be taxable if
food or drinks were provided with the class for a single charge.
The taxable charges for food and drinks must be separately stated
from the defensive driving class fee to avoid taxing the entire
charge.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

You may call me toll free at 1-800-252-5555, ext. 5-0030. The
direct line is 512/475-0030. You may also write to Tax
Administration, Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division