Texas Letter Ruling 9406L1329G11: Textbooks — Sold To Students Or Exempt Org Members Vs. Included In A Lump Sum Charge For A Class

Plain-English summary

An organization that offers classes asked the Comptroller how sales tax applies to the textbook it gives each student as part of the course. The organization charges a single, all-inclusive price for the class and does not separately state or bill for the cost of the book.

The Comptroller held that when a book (or other item) is folded into a lump-sum charge for a training class or other educational course — rather than sold or billed separately — the lump-sum charge to the student is not taxable. Instead, the provider of the course is treated as the consumer of the materials it uses to teach the class, including the books handed out to students, and generally owes sales or use tax on the cost of those materials. In this particular case, however, the organization providing the class was itself an exempt entity, so it was able to purchase the book tax-free rather than paying tax on it.

The letter closes with the Comptroller's standard caution that the answer is based on the facts as submitted, and that other, similar-looking facts could produce a different result.

What this means for you

Course and training providers

If you bundle a textbook, workbook, or other materials into a single lump-sum fee for a class and don't separately bill for those materials, you don't charge your students sales tax on that fee. But you are the one on the hook for tax on the materials — you generally owe sales or use tax on what you paid for the books and other items you hand out, unless you qualify for an exemption (such as being an exempt organization purchasing for its exempt purpose, as in this letter).

Exempt organizations running classes or training programs

Being a recognized exempt entity can let you buy the textbooks or materials you distribute to students tax-free, even though you'd otherwise owe use tax as the "consumer" of those materials under the lump-sum rule. Make sure your exemption documentation supports the purchase.

Accountants and tax professionals

When advising a client that provides classes, check whether materials are billed separately or folded into one price. That distinction — separate line-item sale versus lump-sum charge — determines whether the student's payment is taxable retail sale of the book, or a nontaxable service charge where the provider instead owes tax as the end consumer of the materials.

Common questions

Q: If we charge one flat fee for a class and give students a book, do we charge sales tax on that fee?
A: No. When the book is included in a lump-sum charge for the class and not separately billed, the charge to the student is not taxable.

Q: If the lump-sum charge isn't taxable, does anyone owe tax on the book?
A: Yes — the course provider generally owes sales or use tax on the cost of the book and other materials used to provide the course, because the provider is treated as the consumer of those items.

Q: Does it change anything if the organization providing the class is a tax-exempt entity?
A: Yes. In this letter, because the organization was an exempt entity, it could purchase the book tax-free instead of owing tax on it.

Q: What if we itemized the book's cost separately from the class fee instead of charging one lump sum?
A: This letter addresses only the lump-sum scenario; separately stating and charging for a book could change the analysis, since the Comptroller notes that different facts may yield different results.

Citations and references

• Tex. Tax Code Ch. 151 (general Texas sales and use tax framework — no specific section was cited in the original letter; the ruling applies the general principle that a lump-sum charge for a taxable item bundled with a nontaxable service is not itself taxed to the customer, while the provider owes tax on the materials it consumes, subject to any applicable exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1329G11

Original ruling text

June 29, 1994

Dear **:

This is in response to your letter dated June 23, 1994, regarding sales
tax as it applies to books provided to students taking classes from the
**.

The ** gives classes and charges for the classes. As a part
of the course, the student is given a book. The **** bills the
student a single price for the course and do not separately identify the
cost of the book.

When the book is included in a lump-sum charge for a training class or
other educational course, the lump-sum charge to the student is not
taxable. The provider of the course will owe tax on the cost of all
materials used to provide the course, including the items transferred to
the students. However, because the ** is an exempt entity, the
book may be purchased tax-free.

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

You may call me toll free at 1-800-531-5441, ext. 50330. The direct line
is 512/475-0330. You may also write to Tax Administration, Comptroller of
Public Accounts.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9406810L