Is sales tax due on tickets to a college football game when a for-profit promoter helps run the event and shares in the revenue?

Subject

College/University — Football/Basketball Games/Sporting Events Or Tournaments — If Players Are Students Admission/Tickets Are Exempt Even If Private Promoter Is Sharing Revenues

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1293B09

Plain-English Summary

Two universities and a private promoter entered into an agreement to stage a college football game. The promoter rented the stadium ("FACILITY") from a city, and had the right to market and sell tickets, parking, novelties, and related items — as did the two universities. Net revenue from ticket and other sales was split 20% to the promoter and 40% each to the two universities. Critically, the promoter did not share in any losses the universities suffered, and the universities did not share in any losses the promoter suffered. The contract stated it was not intended to create a partnership or joint venture, and that the promoter was acting as an independent contractor.

The Comptroller's response was short and direct: the ticket sales are not subject to sales tax.

The file also includes two earlier related letters from the taxpayer's representative addressing a similar arrangement between other schools (referred to as "UNIVERSITY C" and "UNIVERSITY D") and the same type of promoter. Those letters explain the legal reasoning behind this result: Texas rules exempt amusement services provided exclusively by nonprofit organizations (34 Tex. Admin. Code § 3.298(g)). A for-profit organization, like the promoter here, can provide expertise to help produce the event without the nonprofit losing that exemption, as long as the nonprofit holds itself out as the provider of the amusement and isn't a joint venturer with the for-profit entity. Because one of the schools involved was a state-operated institution, an added rule applied (34 Tex. Admin. Code § 3.298(h)(3)): the event must be solely for educational purposes, which is satisfied if students of the school actually perform the amusement — here, by playing in the football game. The letters also point to Coastal Plain Development Corp. v. Micrea, 572 S.W.2d 285 (1978), for the proposition that a joint venture requires (among other elements) an agreement to share losses — which was expressly absent from this promoter/university arrangement.

What This Means For You

If you are a university, college, or nonprofit organization staging a sporting event with a private promoter: Ticket sales can remain exempt from sales tax even if a for-profit promoter shares in net revenue, so long as (1) your own students are actually the ones playing/performing, (2) the contract does not create a partnership or joint venture with the promoter, and (3) the promoter does not share in any losses you might suffer (and you don't share in any of the promoter's losses).

If you are a promoter or events company working with schools: Structure your revenue-sharing agreements as independent contractor relationships, not partnerships or joint ventures. Avoid loss-sharing provisions if you want the school's amusement-tax exemption to hold up — a joint venture (which requires a loss-sharing agreement, among other elements) can jeopardize the exemption.

If you are advising on a similar arrangement: This ruling is fact-specific — the Comptroller explicitly notes the opinion is "rendered based on the facts you submitted" and that "other facts, though similar, may yield different results." Confirm your specific contract terms (revenue split, loss allocation, independent-contractor language, and who is actually performing) align with what was described here before relying on this outcome.

Q&A

Q: Does bringing in a for-profit promoter automatically make a college sporting event's ticket sales taxable?
A: No. In this ruling, the promoter's involvement — including marketing tickets and taking a 20% cut of net revenue — did not defeat the exemption, because the arrangement was structured as an independent contractor relationship rather than a partnership or joint venture, and the promoter didn't share in any losses.

Q: Why does it matter whether the players are students?
A: One of the schools involved was a government-operated institution, which triggers an additional requirement that the event be "solely for educational purposes." That requirement is met if students of the educational institution are the ones actually performing the amusement (playing in the game).

Q: What made this arrangement not a "joint venture" with the promoter?
A: The contract stated it wasn't intended to create a partnership or joint venture, and — importantly — the promoter would not share in any losses suffered by the universities, and the universities would not share in the promoter's losses. Under Coastal Plain Development Corp. v. Micrea, 572 S.W.2d 285 (1978), an agreement to share losses is one of the required elements of a joint venture, so its absence here supported the conclusion that no joint venture existed.

Citations

• 34 Tex. Admin. Code § 3.298(g) (exemption from sales tax for amusement services provided exclusively by nonprofit organizations; a for-profit entity may provide expertise without destroying the exemption if the nonprofit holds itself out as the provider and isn't a joint venturer with the for-profit entity)
• 34 Tex. Admin. Code § 3.298(h)(3) (for governmental/educational entities, the amusement must be solely for educational purposes, satisfied when students of the institution actually perform the amusement)
• Coastal Plain Development Corp. v. Micrea, 572 S.W.2d 285 (Tex. 1978) (cited in the taxpayer's letter for the elements required to form a joint venture, including an agreement to share losses)

Original ruling text

March 21, 1994

Dear Mr. **:

Thank you for your recent letter that is restated in part with response below.

On October 22, 1993, the **, (UNIVERSITY A), **,
(UNIVERSITY B), and ** (PROMOTER) entered into an agreement. Under
this agreement, PROMOTER furnished and made available and provided for the
rental of the FACILITY from the City of ** for the playing of a
college football game between the UNIVERSITY A and UNIVERSITY B. PROMOTER had
the right to market and sell tickets, parking and novelties and related items.
UNIVERSITY A and UNIVERSITY B also marketed tickets, novelties and related
items. Net revenue from the sale of game tickets and other items is to be
shared twenty percent by PROMOTER, forty percent by UNIVERSITY A and forty
percent by UNIVERSITY B. PROMOTER will not share any losses suffered by
UNIVERSITY B or UNIVERSITY A, and neither UNIVERSITY B nor UNIVERSITY A will
suffer any of PROMOTER's losses.

The contract between PROMOTER, UNIVERSITY A and UNIVERSITY B provides that it
is not intended to create a partnership or joint venture and that none of the
parties to the agreement is in any way responsible for the debts, obligations,
or losses of the other, and that PROMOTER is providing its services as an
independent contractor.

Response: The ticket sales are not subject to sales tax.

This opinion is rendered based on the facts you submitted. Other facts, though
similar, may yield different results.

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531- 5441 (ext. 34680). My direct line
number is (512) 463-4680. The number for FAX transmissions is (512) 475-0900.
You may write to me in care of Tax Administration Division.

Sincerely,

Tom Poole
Tax Administration Division

December 20, 1993

Mr. Tom Poole
Tax Administration Division
Comptroller of Public Accounts
111 West Sixth Street
Austin, Texas 78701

Dear Mr. Poole:

On August 12, 1993, I sent you a letter discussing the relationship between
UNIVERSITY C, UNIVERSITY D and PROMOTER. On October 22, 1993, the
** ("UNIVERSITY A"), ** ("UNIVERSITY B") and the
PROMOTER entered into an agreement similar to the one referenced in my letter
of August 12, 1993. Under this agreement, PROMOTER furnished and made
available and provided for the rental of the FACILITY from the City of
** for the playing of a college football game between the
UNIVERSITY A and UNIVERSITY B. PROMOTER had the right to market and sell
tickets, parking and novelties and related items. UNIVERSITY A and UNIVERSITY
B also marketed tickets, novelties and related items. Net revenue from the
sale of game tickets and other items is to be shared twenty percent by
PROMOTER, forty percent by UNIVERSITY A and forty percent by UNIVERSITY B.
PROMOTER will not share any losses suffered by UNIVERSITY B or UNIVERSITY A,
and neither UNIVERSITY B nor UNIVERSITY A will suffer any of PROMOTER's losses.

The contract between PROMOTER, UNIVERSITY A and UNIVERSITY B provides that it
is not intended to create a partnership or joint venture and that none of the
parties to the agreement is in any way responsible for the debts, obligations
or losses of the other, and that PROMOTER is providing its services as an
independent contractor.

For your convenience I have enclosed a copy of my previous letter to you dated
August 12, 1993, that discusses the law on this issue and a copy of your
response dated August 25, 1993. I would appreciate it if you would send me a
letter with respect to the UNIVERSITY A/UNIVERSITY B game that is similar to
your August 25, 1993 letter.

Sincerely,

W. Thomas Weir

cc: Mr. Rick A. Pych

August 12, 1993

Mr. Tom Poole
Tax Administration Division
Comptroller of Public Accounts
111 West Sixth Street
Austin, Texas 78701

Dear Mr. Poole:

As we discussed over the telephone last week, ** ("UNIVERSITY C")
and PROMOTER, a Texas corporation that is an affiliate of the **
("PROMOTER") are entering into a marketing agreement. Under this agreement,
PROMOTER shall furnish and make available the FACILITY stadium in the City of
** and provide for the rental of the FACILITY from the City of
** for the playing of a college football game between UNIVERSITY C
and the ** ("UNIVERSITY D").

PROMOTER will have a right to sell a title sponsorship to the game and limited
rights to market and sell tickets, parking, novelties and related items.
UNIVERSITY C and UNIVERSITY D will also be selling and marketing tickets,
novelties and related items. PROMOTER and UNIVERSITY C will each incur their
own expenses in connection with the game. Net revenue from the sale of game
tickets is to be shared 10 percent (10%) by PROMOTER and 90 percent (90%) by
UNIVERSITY C. PROMOTER will not share in any losses suffered by UNIVERSITY C
or UNIVERSITY D as a result of the staging of the amusement. The agreement
between PROMOTER and UNIVERSITY C provides that it is not intended to create a
Joint venture between PROMOTER and UNIVERSITY C. In addition, the game will be
promoted as a football game between UNIVERSITY D and UNIVERSITY C.

The Texas Limited Sales and Use Tax Rules provide an exemption from the sales
tax for amusement services provided exclusively by nonprofit organizations.
See 34 Texas Administrative Code Section 3.298(g), hereafter referred to as
Section 3.298. As you are aware, UNIVERSITY C is a nonprofit organization and
UNIVERSITY D is an institution operated by the State of Texas. Section
3.298(g)(3) states that a for-profit organization may provide the expertise to
produce an event without loss of the exemption provided by paragraph (l)(A) of
Section 3.298(g). It further states that the nonprofit organization must hold
itself out as the provider of the amusement and may not be a Joint venturer
with the for- profit entity. Paragraph (h) of Section 3.298 sets forth a
further restriction for entities classified as governmental entities. This
further restriction is that the event must be solely for educational purposes.
Section 3.298(h)(3) states that an amusement will be solely for educational
purposes if students at the educational institution actually perform the
amusement. UNIVERSITY D should meet this requirement since its students will
be providing the amusement. UNIVERSITY D and UNIVERSITY C will be the
providers of the event and since the PROMOTER will not share in any losses
suffered by UNIVERSITY D or UNIVERSITY C, there should not be a Joint venture
created between UNIVERSITY C and/or UNIVERSITY D and the PROMOTER. The Texas
Supreme Court, in Coastal Plain Development Corp. v. Micrea, 572 S.W.2d 285
(1978), decided that in order to create a Joint venture between two parties,
four elements must be found. One of these elements is an agreement to share
losses. Since there is no agreement to share losses in the marketing agreement
between UNIVERSITY D, UNIVERSITY C and the PROMOTER, there should be no Joint
venture.

Therefore, we ask you to rule that there is no sales tax due on the sale of the
tickets to the UNIVERSITY D/UNIVERSITY C football game to be held at the
FACILITY for the reasons stated above.

If you have any further questions, please feel free to phone me.

Sincerely,

cc: **

NOTE: Previous Accession Number 9403186L