Texas Letter Ruling 9409L1316G12: Racetracks — Leased By Exempt Organization To Hold Event — Taxability Of Ticket Sales And Rental Fee/Proceeds Received By Nonexempt Lessor

Subject

Racetracks — Leased By Exempt Organization To Hold Event — Taxability Of Ticket Sales And Rental Fee/Proceeds Received By Nonexempt Lessor

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9409L1316G12

Plain-English Summary

A racetrack owner leased the track for twenty (20) days a year to a nonprofit entity that used it to run a national race event. The lease contract paid the owner a percentage of net sales, and it specifically said the owner and the nonprofit were not a partnership or joint venture. The nonprofit was the only promoter of the event.

The Comptroller ruled that the rental fee the racetrack owner received from the nonprofit is not subject to sales tax. It also ruled that the nonprofit's ticket sales to the race event are exempt, but only if the nonprofit is the sole provider of the amusement service, as "amusement services" is defined in 34 Tex. Admin. Code § 3.298(a)(4). Any profit or loss from the race has to revert to the nonprofit for this exemption to hold. Even with an exempt lease and exempt tickets, sales tax must still be collected on souvenir items, concession sales, and event program sales — those are ordinary taxable retail sales, not amusement services.

What This Means For You

Racetrack, stadium, and venue owners

If you lease your facility to a tax-exempt nonprofit that runs its own event and pays you a percentage of net sales (rather than a flat lease payment tied to your own promotion of the event), that rental income can fall outside sales tax. The key facts the Comptroller relied on were that the arrangement was a true lease (not a joint venture or partnership) and that the nonprofit — not you — was the promoter of the event.

Nonprofits that promote events at leased venues

Your ticket sales can be exempt from sales tax, but only if you are the sole provider of the amusement service under Rule 3.298(a)(4) and any profit or loss from the event reverts to your organization. If a for-profit co-promoter is involved, or if profits flow back to the venue owner beyond the lease payment, the exemption is at risk.

Concessionaires and event organizers

Regardless of how the lease or ticket sales are taxed, sales tax still applies to souvenir merchandise, concessions (food and drink), and programs sold at the event. Those are treated as ordinary taxable sales of tangible personal property, separate from the amusement service itself.

Q&A

Q: Does my racetrack owe sales tax on the rent a nonprofit pays to use the track for its event?
A: Under this ruling, no — rental compensation paid by an exempt entity that is percentage-of-net-sales based, under a true lease (not a partnership or joint venture), was not subject to sales tax.

Q: Are the nonprofit's ticket sales to the race event taxable?
A: They are exempt if the nonprofit is the sole provider of the amusement service as defined in 34 Tex. Admin. Code § 3.298(a)(4), and any profit or loss from the event reverts to the nonprofit.

Q: What about souvenirs, concessions, and event programs sold at the race?
A: Those remain subject to sales tax regardless of the exempt status of the lease payment or ticket sales.

Citations

• 34 Tex. Admin. Code § 3.298(a)(4) (definition of amusement services; exemption where exempt organization is sole provider)

Original ruling text

September 8, 1994

Dear **:

Thank you for your letter of July 27, 1994. You asked that we
address the taxability of a lease contract used by a client.

As I understand it, your client owns a racetrack. The racetrack is
leased for twenty (20) days each year by a nonprofit entity so the
entity may conduct a national race event. The compensation received
by your client is based on a percentage of net sales as defined in the
lease contract. The contract states that your client and the exempt
entity are not to be construed as a partnership or joint venture.
The exempt entity is the only promoter of the event.

The compensation received by your client from the exempt entity
for rental of the racetrack is not subject to sales tax. The ticket
sales are exempt from tax if the exempt entity is the sole provider of
this amusement service as that term is defined in Subsection (a)(4) of
Rule 3.298. Any profit (or loss) from the race must revert to the
exempt entity. Sales tax must be collected on sales of souvenir items,
concession sales, and program sales.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct
line is 512/475-0037. You also may write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9409586L