Was a mandatory charitable Christmas-tree sponsorship taxable when the sponsor received possession of a decorated tree for three weeks?

Plain-English summary

The Christmas-tree sponsorships were taxable as sales or rentals of tangible personal property rather than treated as nontaxable donations.

An organization bought artificial trees and lights, displayed decorated trees during a four-day festival, and then allowed business sponsors to possess their sponsored trees for three weeks. The sponsorship payment was required to receive possession of a tree.

The Comptroller applied two questions: whether the donation amount was mandatory and whether the value received was commensurate with the donation. Both answers were yes. The sponsor received three weeks' possession of a decorated tree in exchange for the required payment, making the arrangement consistent with a taxable sale or rental.

What this means for you

Calling a required payment a donation or sponsorship did not control its tax treatment. Under this letter, a mandatory payment exchanged for comparable possession or use of property was treated as a taxable transaction.

Common questions

Why was the sponsorship taxable? Payment was mandatory to receive the tree, and the sponsor received value commensurate with that payment.

What did the sponsor receive? Possession of a decorated artificial tree for three weeks during the Christmas season.

Did the charitable purpose make the exchange nontaxable? Not under the facts in the letter; the required exchange was treated as a sale or rental.

Citations and references

The letter cited no specific statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205L1174F06

Original ruling text

May 4, 1992

Dear **:

Thank you for your recent letter regarding the taxability of "Christmas Tree
Sponsorships". I appreciate your patience and apologize for the delay in
responding.

The ** purchases artificial trees and lights, and various clubs and
individuals work as designers. Using the trees, lights, and decorations these
trees are displayed in the * building during the four days of the
Festival. The cost of sponsoring these trees is: * for a 7 1/2"
tree, and * for a 10' tree. The "Tree Sponsors" are allowed to have
these trees on display at their respective businesses for 3 weeks. Thus, adding
additional exposure for the ***, and the charity that benefits from
the money raised.

You are asking for a written opinion about the taxability of the "Tree
Sponsorship". You feel that it should not be a taxable, situation for the
business because the business is underwriting the costs for the displayed
trees.

Response: In determining if a transaction is a sale or a donation, there are
two question that are appropriate to ask:

1) Is the amount of the donation mandatory? And, if so:
2) Is the value given commensurate with the donation?

In this case both answers are yes. A donation/sponsorship of ** or
**** is mandatory in order for the business to have possession of the
decorated tree for a period of three weeks. There is no question but that the
Tree Sponsors are receiving-value commensurate with their donation in the form
of possession of a nicely decorated tree during the Christmas Season. This is
in line with a sale or rental of tangible personal property and would be
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 me at
1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division