If a sports facility operator rents its facility long-term to instructors who use it only to teach students (no tournaments, leagues, or open play), is the facility rental taxable even though the instructors' own teaching services are tax-exempt?

Plain-English summary

A sports facility operator pushed back on an earlier Comptroller determination (from a different staffer, in an earlier letter) that its long-term facility rentals — entire facility, consecutive evenings, for 6-7 months at a time, rented to instructors who use the space exclusively to teach students (no tournaments, league play, or open play) — were taxable amusement services. The operator argued this seemed wrong: since sports instruction is specifically excluded from tax as a "nonamusement service" under Rule 3.298(a)(2), and the instructors' rental use is exclusively for that excluded instructional purpose, how could the operator's rental to them still be a taxable amusement service? The operator asked for either a reversal, a second opinion confirming the prior ruling, or permission to accept a sports-instruction exemption certificate from these renters.

The Comptroller reaffirmed the original determination, explaining the key concept: sales tax is a transaction tax, imposed under § 151.051(a) "on each sale of a taxable item" — meaning each transaction in a chain is evaluated on its own terms, not by looking through to how the ultimate end-user's service is taxed. Here there are two separate transactions:

1. The facility rental (operator → instructors): renting a sports facility to a person or group, for an hour, a day, or a longer block of time, is itself taxable as an amusement service. This charge is only nontaxable if the renter intends to resell the amusement service without using it themselves and provides a properly completed resale certificate — which doesn't apply here, since the instructors are actually using the facility (to teach), not reselling admission to it.
2. The instructors' charge to their students (instructors → students): this is a separate transaction, and it IS properly excluded from tax as a nonamusement service under Rule 3.298(a)(2), since sports instruction is specifically carved out.

So both the operator's original tax treatment and the students' ultimate tax-free instruction charge are correct simultaneously — the transactions are legally distinct, even though the underlying activity (teaching sports in the rented space) is continuous in practice.

What this means for you

Sports facility operators renting to instructors, coaches, or teaching businesses

Even if your renter uses the space exclusively for a nontaxable purpose (like instruction), your rental charge to them is still a separately taxable amusement-service transaction — unless they're genuinely reselling admission to the facility (not using it themselves) and give you a proper resale certificate. Don't assume the renter's downstream tax-exempt activity flows back to exempt your rental charge.

Instructors renting facilities to teach students

Your charge to students for sports (or musical) instruction remains a nontaxable nonamusement service under Rule 3.298(a)(2) regardless of whether you paid tax on the facility rental yourself — that tax is a cost of doing business for you, not something passed through or offset by your own nontaxable service to students.

Accountants and tax professionals

This letter is a clean illustration of Texas's transaction-by-transaction approach to sales tax: don't conflate a taxable upstream transaction with a nontaxable downstream one just because they involve the same physical space or activity.

Common questions

Q: If a sports facility is rented exclusively for tax-exempt instruction, is the rental itself exempt?
A: No — the facility rental to the instructor is a separately taxable amusement-service transaction, distinct from the instructor's own nontaxable charge to students.

Q: Can the instructor give the facility operator a resale certificate to avoid the rental tax?
A: No, not in this fact pattern — a resale certificate only works if the renter intends to resell the amusement service without using it themselves; here the instructors are using the facility to teach, not reselling admission to it.

Q: Is charging students for sports instruction taxable?
A: No — sports (and musical) instruction is specifically excluded from amusement-service tax under Rule 3.298(a)(2).

Q: Can another facility operator rely on this letter?
A: Only the taxpayer who requested it can use it for detrimental reliance, and it reaffirms a prior letter to the same taxpayer; the transaction-tax principle applied here, however, reflects general Texas sales tax law (§ 151.051(a)) rather than a fact-specific exception.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051(a) — sales tax imposed on each sale of a taxable item (the "transaction tax" principle)
• 34 Tex. Admin. Code Rule 3.298(a)(2) — Amusement Services; sports/musical instruction excluded as a nonamusement service

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910832L

Original ruling text

October 27, 1999

Dear **:

This is in response to your request for a taxability determination based on the
following fact situation and questions:

Within the past year, we requested and received a tax determination from your
office. The last response from your office was on March 9, 1999 from Ms. Bettie
Peterson. We had requested clarification of taxability on some long term
rentals. In summary, she determined that these rentals are taxable. The rental
in question is to organizations for large blocks of time - the entire facility,
consecutive evenings, for 6 to 7 months. The wording of the response seems to
indicate that we and also our renters themselves are operating a taxable
amusement service.

We began operations by charging tax on these rentals. in the intervening
months, the customers impacted by the imposition of this tax have complained to
us that they should be exempted from the sales tax, because they are providing
sports instruction, which is specifically excluded from tax in section 3.298.
The rentals are indeed exclusively for instruction by our customers; there are
no tournaments, league play, or open play during these rental periods. The
renters do not collect tax and cannot provide a resale certificate, as
suggested in Ms. Peterson's letter.

While many parts of our operations are taxable, this one area, we feel, is
outside of the scope and intent of section 3.298. If our renters in this case
are providing a non-amusement service per section 3.298 (a)(2), how can we be
providing a taxable amusement service to them? If we charge our renters tax,
they pass the extra cost on to their students. The end result is that the
students are effectively paying tax on a non-amusement service, which is
clearly exempt.

We have spoken with a few others in the State Comptroller employees that have
similar viewpoints. We therefore feel this matter is a gray area and deserves
further review. We seek the following:

1. A reversal of Ms. Peterson's earlier decision, or

2. Corroboration of Ms. Peterson's decision by another person in the Tax Policy
   division, and/or

3. To be able to accept a tax exemption certificate from those renters
   providing sports instruction, under the provisions of section 3.298 (a)(2)

Response: Sales tax is a transaction tax. Subsection (a) of Texas Tax Code
151.051, provides that "a tax is imposed on each sale of a taxable item in this
state." When you rent your sports facilities to a an individual or to a group
for an hour, a day or for longer blocks of time this transaction is taxable as
an amusement service. Sales tax is due on this charge unless the purchase
intends to resell the amusement service without making a use of it and provides
you with a properly completed resale certificate. This is not the case because
the instructors use the facilities to provide instruction.

Their charge to their students is a second transaction. As you properly noted
instructions for any sport or musical discipline is considered a "nonamusement"
service under Rule 3.298 (a)(2). Therefore, the instructors charge to their
students for instruction in a sports discipline is excluded from tax as an
amusement service and by default is a nontaxable service.

Providers of nontaxable services are required to pay tax on all purchases of
taxable items (tangible personal property and taxable services) that are used
to provide their service.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy