When a caterer or event planner rents out a facility with recreational amenities and provides food, is the facility rental charge taxable as an amusement-service admission?

Subject

Food Service Provider/Caterer/Event Planner — Rental Of Room/Facility To Provide/Serve Food Is Taxable As Part Of Sales Price Of Food

Plain-English summary

This 1996 memo from the Texas Comptroller's Tax Policy Division answers a series of questions from a Fort Worth auditor about a caterer/event planner whose facility includes a swimming pool, volleyball court, horse riding trails, baseball fields, and a fishing area. The core theme running through every answer: because the taxpayer's site has these sport and recreation amenities, the taxpayer is a "provider of an amusement service" under Rule 3.298, and any charge to use the facility is taxable as a sale of an admission to an amusement service -- regardless of whether food, entertainment, or a cash bar is also part of the package.

Facility rental is taxable no matter what else is included. The ruling walks through seven combinations of entertainment, food (catering), and mixed beverages provided at the facility (Cases 1 through 7, including the case where none of those three are provided). In every single case, the facility rental is taxable as an admission to an amusement service, citing Rule 3.298 (and, where catering is involved, Rule 3.293 as well). Facility rental combined with the sale of food is specifically called out as taxable.

Most of the individual entertainment acts are taxable amusement services. The taxpayer listed a long roster of acts and services it provides: bands, gunfighters, a "quick draw" sheriff and deputy act, comedians, clowns, a DJ, a dance troupe, a caricaturist, karaoke, singers, face painters, a dunking booth, carnival games, a petting zoo, sumo wrestling, a bungee trampoline, a jukebox, dance lessons, calf-roping lessons, and a police security officer. The Comptroller's answers split these:

• A caricaturist's separate charge is taxable, but as the sale of graphic art, not as an amusement service.
• A face painter's separate charge is not taxable.
• Dance lessons and calf-roping lessons are taxable as amusement services unless the provider can show the charge is for actual instruction rather than entertainment.
• All the other listed activities (bands, gunfighters, comedians, clowns, DJ, dance troupe, karaoke, singers, dunking booth, carnival games, petting zoo, sumo wrestling, bungee trampoline, jukebox) are taxable as amusement services, and the cost of the police security officer is taxable as an expense connected to the sale of the taxable service.

Off-premises entertainer charges can be different. If the taxpayer sends an entertainer to perform at a customer's own premises -- where the taxpayer has no ownership, lease, or other contractual right to that site -- and does not charge an admission, that entertainer charge is not taxable, whether or not food is also provided at that off-premises event. The ruling gives a singer's performance fee as an example.

Resale and exemption certificates. Direct payment permit holders may present a direct payment exemption certificate and self-accrue tax later. Exempt entities may present an exemption certificate for taxable items tied to their exempt purpose, and the taxpayer may accept a properly completed certificate instead of collecting tax from that qualifying entity. Separately, the taxpayer may accept a resale certificate from another caterer who is renting the facility -- but that other caterer must then collect tax on its own total charges to its customers, including the facility-rental expense passed through.

Sub-leased facility, different caterer. Even if a company leases the facility from this taxpayer and hires a different caterer to handle the food, the facility-rental receipts are still taxable to this taxpayer, because the amenities on site (pool, volleyball, riding trails, ball fields, fishing) make the taxpayer a provider of amusement services regardless of who caters the food.

What this means for you

Caterers, event planners, and venue operators

If your venue includes recreational amenities -- a pool, sport courts, trails, fields, or similar -- expect the Comptroller to treat any charge for access to the facility as a taxable amusement-service admission (Rule 3.298), even for events with no formal "entertainment," no food, and no bar (Case 7 in this ruling). Bundling in catering does not make the facility charge exempt; it stays taxable, and Rule 3.293 can also come into play on the food side.

Businesses booking entertainers or instructors

Not every act is automatically taxable. A stand-alone face-painting charge is not taxable, and dance or calf-roping lessons can escape tax if you can document the charge is genuinely for instruction rather than entertainment. If you send an entertainer to perform at the customer's own site -- where you hold no ownership, lease, or contract interest in that location -- and you don't charge an admission, that entertainer fee is not taxable either.

Accountants and tax professionals advising these businesses

Watch for certificate handling: direct payment permit holders can give a direct payment exemption certificate (with tax self-accrued later), exempt entities can give exemption certificates tied to their exempt purpose, and a caterer can accept a resale certificate from another caterer renting the facility -- but the certificate-holder caterer is then responsible for collecting tax on its own full charges to its own customers, including the pass-through facility-rental cost.

Common questions

Q: Is a facility rental taxable if the caterer provides no food, entertainment, or bar at the event?
A: Yes. Per Case 7 in this ruling, the facility rental is still taxable as an admission to an amusement service under Rule 3.298, because of the recreational amenities on site.

Q: Does adding catering to a facility rental change the tax treatment?
A: No -- the ruling states facility rental in connection with the sale of food is taxable, citing both Rule 3.293 and Rule 3.298.

Q: Is a separate charge for a face painter taxable?
A: No, according to this ruling a separate face-painting charge is not taxable.

Q: Are dance lessons or calf-roping lessons always taxable?
A: They're taxable as amusement services unless the provider can show the charge is for actual instruction rather than entertainment.

Q: If an entertainer performs at the customer's own premises, is that taxable?
A: Not according to this ruling, as long as the taxpayer has no ownership, lease, or contractual right to that premises and does not charge an admission -- for example, a singer's performance fee.

Q: Can another caterer use this taxpayer's facility with a resale certificate?
A: Yes, the taxpayer may accept a resale certificate from another caterer for use of the facilities, but that other caterer must then collect tax on its total charges to its own customers, including the facility-rental expense.

Q: If a company leases the facility and hires a different caterer for food, does this taxpayer still owe tax on the facility rental?
A: Yes -- the ruling says the rental receipts remain taxable to this taxpayer because of the recreational amenities on site, regardless of who caters the food.

Citations and references

Rules cited:

• Rule 3.298 (definitions and taxability of amusement services, including provider of an amusement service and sale of an amusement service admission)
• Rule 3.293 (food, food products, and meals)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9610050L

Original ruling text

October 31, 1996

TO: George Wood, Fort Worth Audit Office

FROM: David Somerville, Tax Policy

SUBJECT: Taxability of facility rentals of Caterer

Question: The taxpayer has a swimming pool, volleyball court, horse riding
trails, baseball fields, and fishing facility on premises. If access is given
to any of these activities, would facility rental be considered taxable under
the amusement rule?

Response: Yes. The taxpayer is a provider of an amusement service and the
rental of the facility is a sale of an admission. See the definition of
amusement services in Rule 3.298(a)(1). Also see the definition of the
provider of an amusement service in (a)(4) and the sale of an amusement service
admission in (a)(8) of that rule. The taxpayer has a facility with
sport and recreation facilities and any charges to use the facility are taxable
as admission to amusement services.

Question: The taxpayer provides bands, gunfighters, quick draw sheriff &
deputy, comedians, clowns, disc jockey, dance troop, caricaturist, karaoke,
singers, face painters, dunking booth, carnival games, petting zoo, sumo
wrestling, bungee trampoline, juke box, dance lessons, calf roping lessons, and
a Police Security Officer. Would any of these activities not be considered an
amusement and not be taxable for sales and use tax?

Response: A separate charge by a caricaturist is the taxable sale of graphic
art rather than an amusement service. A separate charge by a face painter is
not taxable. The dance lessons and calf roping lessons are taxable as
amusement services unless the provider can show these charges are for actual
instruction rather than mere entertainment. The other activities are
taxable as amusement services and the security is taxable as an expense
connected to the sale of a taxable service.

Cases on facility rental. Facility has a swimming pool, volleyball court,
horse riding trails, baseball fields, and fishing facility on premises.

Case 1: Entertainment, food and mixed beverages provided

Case 2: Entertainment and food provided

Case 3: Food provided

Case 4: Entertainment and mixed beverages provided

Case 5: Entertainment provided

Case 6: Mixed beverage provided

Case 7: No entertainment, food, or mixed beverages provided

Question on Case 1, 2 & 3: Are the receipts of facility rentals taxable when
catering of food is present?

Response: The facility rental is taxable as an admission to amusement services
because the facility has a swimming pool, volleyball court, horse
riding trails, baseball fields, and fishing facility on premises.
Please note that facility rental in connection with the sale of food is
taxable. See Rule 3.293 and Rule 3.298.

Question on Case 4: Are the receipts of facility rentals taxable when
entertainment is provided and there is a bar provided?

Response: The facility rental is taxable as an admission to amusement
services. See Rule 3.298.

Question on Case 5: Are the receipts of facility rentals taxable when
entertainment is provided and there is neither catering (food) nor bar
provided?

Response: The facility rental is taxable as an admission to amusement
services. See Rule 3.298.

Question on Case 6: Are the receipts of facility rentals taxable when the
catering of food is not present but there is a bar and no entertainment
provided?

Response: The facility rental is taxable as an admission to amusement
services. See Rule 3.298.

Question on Case 7: Are the receipts of facility rentals taxable when no food,
entertainment, or cash bar is provided?

Response: The facility rental is taxable as an admission to amusement
services. See Rule 3.298.

Question: If the taxpayer provides entertainment for off premises events and
does not have a contractual right to the premises (i.e., ownership, lease, or
contract) are the receipts relating to entertainment taxable if the taxpayer
provides food at the event?

Response: The sale of an amusement service admission by a provider of an
amusement service is taxable. If the taxpayer is not a provider of an
amusement service as defined in Rule 3.298(a)(4) and does not charge an
admission, a charge for an entertainer is not taxable. For example, a
singer does not charge sales tax on a fee to perform as explained in
(a)(8) of the rule. Therefore, if the taxpayer charged a customer for an
entertainer to appear at the customer's own premises, this is not taxable as
an admission.

Question: If the taxpayer provides entertainment for off premises events and
does not have a contractual right to the premises (i.e., ownership, lease, or
contract) are the receipts relating to entertainment taxable if the taxpayer
provides no food at the event?

Response: Again, if the taxpayer charged a customer for an entertainer to
appear at the customer's own premises, this is not taxable as an admission.

Question: Can the taxpayer accept exemption certificates and direct pay
permits for qualifying entities if they are using the services for themselves?

Response: Direct payment permit holders may give direct payment exemption
certificates and then accrue tax on the purchase of taxable items. Exempt
entities may give exemption certificates when purchasing taxable items
related to their exempt purpose. The taxpayer may accept a properly completed
certificate instead of collecting tax on taxable items billed to the
qualifying entity.

Question: Can the taxpayer accept a resale certificate from another caterer
for use of their facilities?

Response: Yes. The caterer must collect tax on the total charges to his
customers including the expense of the facility rental.

Question: If a company leases out the facility from this taxpayer and hires a
different caterer to provide the food services are the rental receipts from
this facility rental taxable to the taxpayer?

Response: Yes. The taxpayer has a swimming pool, volleyball court, horse
riding trails, baseball fields, and fishing facility on premises. Therefore,
the taxpayer is a provider of amusement services and the rental of the facility
is a sale of an admission.