Does a Texas seller owe sales tax on 'Passport Books' that give the holder free and discounted rounds of golf at participating courses?

Plain-English summary

A Texas partnership acquired the state licensee rights to market a "Passport Book" — a coupon book that entitles the holder to free and discounted rounds of golf at participating golf courses listed in the book (subject to restrictions set by each course). The books are sold at booths at golf trade shows around the state.

The taxpayer asked the Comptroller's office to confirm that selling these books is not subject to sales tax. The Comptroller agreed, but only for sales to the end user: the sale of the Passport Book to the person who will actually use it is treated as the sale of an intangible, which is not taxable. However, if the books are instead sold to someone other than the end user (for example, sold on to another reseller), that sale is taxable as a sale of tangible personal property. The letter also notes that the seller must pay sales tax on the cost of purchasing or printing the books themselves.

What this means for you

Business owners selling coupon or membership-style books

If you sell a book, card, or similar item whose real value is an underlying right or privilege (like free or discounted admission, rounds of golf, or services) rather than the physical paper itself, and you sell it directly to the person who will use it, the sale may be treated as a nontaxable sale of an intangible — the way this Passport Book was. But if you sell the same books to a distributor or another business for resale rather than to the end user, that sale is taxable as tangible personal property. Either way, you owe sales tax on your own purchase or printing costs for producing the books.

Accountants and tax professionals

This ruling draws a clear line based on the buyer's role: sales to the end user of a coupon/passport book are nontaxable intangible sales, while sales to any intermediate buyer (not the end user) are taxable tangible personal property sales. The letter emphasizes that this opinion is based on the specific facts presented and that other facts, even if similar, may lead to a different result.

Common questions

Q: Do I owe sales tax when I sell a golf Passport Book directly to a golfer who will use it?
A: No. The Comptroller ruled that selling this type of coupon book to the end user is the sale of an intangible and is not taxable.

Q: What if I sell the coupon books to someone other than the end user?
A: That sale is taxable, because it is treated as a sale of tangible personal property rather than an intangible.

Q: Do I owe tax on printing or producing the books?
A: Yes. The letter states that sales tax must be paid on the purchase or printing of the books.

Q: Can I rely on this ruling for my own similar product?
A: Not automatically. The letter itself states the opinion is based on the facts presented, and other facts — even if similar — may produce a different result. Letters on STAR generally can only be relied on by the taxpayer to whom they were issued.

Citations and references

No statutes or rules are cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1221G13

Original ruling text

February 16, 1993

Dear **:

This is in response to your letter requesting confirmation that the book
**, will be selling is not subject to sales tax.

** is a partnership formed for the purpose of acquiring the
licensee rights for the State of Texas from ** located in
**, Tennessee. The licensee rights enable ** to
market a product called a "Passport Book". The passport entitles the holder
to free and discounted rounds of golf at participating golf courses listed
in the book. Some restrictions apply and are set by each golf course.

The Passport Book is sold at booths set up at golf trade shows statewide.
Ms. Pam Warren, of our Tax Assistance Section has verbally informed you
that these books are not taxable.

RESPONSE: The sale of the Passport Book is the sale of an intangible and
is not taxable when sold to end users. Sales of the coupon books to anyone
other than the end user are taxable as the sale of tangible personal
property. You must pay sales tax on the purchase or printing of the books.

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
1-800-531-5441, 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