A teacher wants to order rockets from an out-of-state company for a class project. Is it better for each student to order and pay individually, or for the school to place one order and collect money from students as "donations"?

Plain-English summary

A teacher wanted to order model rockets from an out-of-state supplier for a class project, where each child would bring money from home to pay for one. The teacher worried that if 25+ students each tried to place their own order, they'd end up with the wrong rockets or a mess of paperwork — so the school wanted to place one combined order instead. The question was whether structuring it that way (school orders, students "donate" the money) would avoid sales tax.

The Comptroller's answer: it matters a lot who's doing the buying.

• If the students order and pay for the rockets themselves, directly from the out-of-state company, there is no exemption — Texas use tax is technically due on that purchase, same as any other out-of-state purchase by an individual.
• If the school (an exempt educational entity) buys the rockets and gives the out-of-state seller an exemption certificate, the purchase is tax-free.
• Students can "donate" their money to the school, and the school can then buy the rockets tax-free with its exemption certificate — as long as the students don't get a usable rocket to take home in exchange for the donation. Here, students used the rockets in the class project and could keep whatever was left afterward; because that's not the school "selling" them a rocket (and not a taxable amusement service either, since it's an educational activity), the donation structure holds up.

The Comptroller was careful to note this doesn't create a blanket rule: purchases by the school are always exempt, purchases by students are generally taxable, and there's a narrow exemption for buying a taxable item specifically to donate to an exempt entity — but that exemption breaks if the "donor" actually gets to use the item themselves. A parent buying art-class paint and brushes and calling it a "donation" to keep using it wouldn't qualify.

What this means for you

Teachers and school administrators organizing class purchases

Route class-project purchases through the school itself using its tax exemption certificate rather than having students order individually — that's what makes the purchase tax-free. Collecting money from students as a "donation" toward the school's purchase is fine, but the students can't be the ones effectively buying and keeping a usable item in return.

Parents and students

If you order supplies directly from an out-of-state company for your own use in a school project, expect Texas use tax to be technically due on that purchase — routing it as a "donation" to the school doesn't work if you still end up with a usable item you bought for yourself (as opposed to a used/spent item from a shared class activity).

Accountants and tax professionals advising nonprofits or schools

This is a clean illustration of the general-vs-specific-facts exemption trap: an educational entity's blanket sales-tax exemption doesn't automatically extend to individuals who fund a purchase through it. The controlling distinction is whether the "donor" receives a usable taxable item back, not merely how the transaction is labeled.

Common questions

Q: Can students avoid sales tax by ordering supplies directly from an out-of-state company for a class project?
A: No. Texas use tax is technically due on that purchase — there's no exemption just because it's for a school project.

Q: Can the school buy the same supplies tax-free?
A: Yes. As an exempt educational entity, the school can purchase the items tax-free by giving the out-of-state seller its exemption certificate.

Q: Can students give the school money and have the school buy the items with its exemption certificate?
A: Yes, that's fine, as long as the students don't receive a usable item to keep in return for the "donation." Letting students keep spent/used items (like a rocket already flown in the class project) afterward doesn't count as a sale to them.

Q: Does this mean any school purchase funded by student "donations" is automatically tax-free?
A: No. If the "donating" student ends up with a usable taxable item for their own use (e.g., art supplies they keep and use), that's treated as a taxable purchase by the student, not an exempt donation to the school.

Q: Can I rely on this letter for my own school's purchasing situation?
A: No. This opinion is based on the specific facts submitted, and other facts, though similar, may yield different results; it can be relied on only by the taxpayer it was issued to.

Citations and references

No specific Tax Code section or Comptroller rule number is cited in this letter; the Comptroller applies the general educational-entity exemption and the donated-item exemption principles by reference only, without quoting a statute or rule number in the response.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9903308L

Original ruling text

March 30, 1999

To: **

Subject: Tax Policy Question

Dear Ms. **:

Thank you for your e-mail concerning a purchase of rockets for a class project.

Situation: As a class project, a teacher wishes to order rockets for the
children to shoot skyward. Each child brings money from home to pay for the
rockets. If any rockets survive the experience, the child may take it home.
The supplier of these rockets is out of state.

If the teacher gives each child their own order form from the company, you
believe they will not have to pay sales tax. The likelihood, however, of an
entire elementary school class ordering the correct type of rocket and bringing
it to class is remote. The teacher wishes for the school to place the entire
order to ensure that they will all be the correct type and at the school for
the project.

Questions:

1) Can this be structured in such a way as to be nontaxable to the kids? You
believe that if the kids ordered directly from the company, it would be
nontaxable.

Response: I need to point out that if the kids purchase the rockets directly
from the company, there is no exemption. Use tax is technically due on
purchases from an out-of-state seller.

The school is an exempt educational entity and may purchase the rockets for the
class project tax free by giving an exemption certificate to the out-of-state
seller.

2) Could the students "donate" the money to the school for class projects,
then the school "buy" the rockets for its own use through a tax-exemption
certificate?

Response: This is fine. We will not regard the students as "purchasing" the
rockets from the school if the students do not get useable rockets to take home
in return for "donations." Letting the students keep the spent rockets after
the teacher uses the rockets in a class project to teach the children rocketry
is not a "sale" of the rockets by the school. It is not a taxable amusement
service either because it is for educational purposes.

3) Although, this letter references a specific situation, these questions
apply to many other transactions at your schools. How broadly should our
ruling be applied?

Response: Other facts, though similar, may yield different results. Purchases
by the school are always exempt. Purchases by the students are generally
taxable. There is an exemption in the law for the purchase of a taxable item
to be donated to an exempt entity, but the purchaser may not use the taxable
item. Students who purchase taxable items for their own use in a class project
would owe tax. For example, a student or parent could not get an exemption
when purchasing the paint or brushes used in an art class by claiming it is a
"donation" to the school.

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

I hope this information helps. If you have further questions, please e-mail me
at [email protected], or you may reach me by phone at 1-800-531-5441,
ext. 5-0030.

Sincerely,

David Somerville
Tax Policy Division