When a racetrack sells corporate sponsors hospitality-tent passes with closed-circuit race viewing, catered food, and rented tents/furniture, which charges are taxable, and can the racetrack buy the tent equipment tax-free for resale?

Plain-English summary

This document is an internal Tax Policy memo to a Comptroller field auditor, not a letter answering a taxpayer's own question directly — it resolves an audit question about a racetrack operator ("ST") that hosts NASCAR and Indy-style races.

At its events, corporate sponsors pay ST for passes into hospitality tents. ST rents and sets up the tents plus everything inside them -- TV monitors for watching the race, tables, chairs, serving utensils. Food and beverages are billed separately by ST's affiliated (but legally separate) catering company. The memo addresses three questions:

1. Is admission to the hospitality tent taxable? Yes -- the Comptroller treats it as a taxable amusement service, comparing it directly to paying for a closed-circuit viewing of a heavyweight boxing match. Under Rule 3.298(a), an amusement service is "entertainment, recreation, sport, pastime, diversion, or enjoyment that is a pleasurable occupation of the senses" -- watching the race on the tent's monitors while eating, drinking, and socializing fits that definition.

2. Does ST owe tax on renting the tents, tables, chairs, and monitors it uses to run this business? Yes. A resale certificate only works for tangible personal property that's actually transferred to the customer's own care, custody, and control -- and the tents/furniture/monitors stay under ST's control throughout the event, not the sponsor's. ST also can't resale-certificate the equipment as part of the amusement service itself, since Rule 3.298(f)(1)-(2) only allows that where the item is transferred as an integral part of the taxable service being resold, which this equipment rental to run the event is not.

3. Is the affiliated catering company's food and beverage charge taxable? Yes, under Rule 3.293(b)(5) governing food service -- with one carve-out: sales/use tax doesn't apply to mixed-beverage receipts (and gratuities on them) that are already taxed under the Texas Alcoholic Beverage Code's mixed-beverage gross receipts tax, per Rule 3.289.

What this means for you

Racetracks, stadiums, and other venues selling premium/hospitality packages

If you sell hospitality-tent, suite, or similar premium packages that include entertainment viewing plus amenities, expect the whole admission charge to be taxed as an amusement service -- and expect to owe tax yourself on renting the furniture and equipment you use to stage it, since that equipment typically stays under your control rather than the customer's.

Venue-affiliated caterers

Food and beverage charges billed separately by an affiliated catering entity are still taxable in their own right, with the specific exception for mixed-beverage receipts already covered by the state's alcoholic beverage gross receipts tax.

Accountants and auditors

Note the STAR system's own currency flag on this letter: it points to a later 2017 amendment of Rule 3.285 with more specific care/custody/control guidance relevant to the resale-certificate question this memo addresses -- check current Rule 3.285 rather than relying solely on this 2001 memo's resale-certificate reasoning.

Common questions

Q: Is watching a race on a closed-circuit TV in a hospitality tent an "amusement service"?
A: Yes, per this memo -- the Comptroller analogized it to paying for closed-circuit viewing of a boxing match, both fitting Rule 3.298(a)'s definition of amusement service.

Q: Can a venue buy the furniture and monitors it rents for these tents tax-free with a resale certificate?
A: No, according to this 2001 memo, because that equipment isn't transferred to the customer's care, custody, and control. (STAR flags that Rule 3.285 was later amended in 2017 with more specific guidance on this kind of question -- verify current rule text.)

Q: Are mixed drinks served in the tent subject to sales tax on top of the alcoholic beverage tax?
A: No -- receipts from mixed beverages (and gratuities on them) that are already taxed under the Alcoholic Beverage Code's mixed-beverage gross receipts tax are excluded from sales/use tax.

Q: Does this memo bind the Comptroller for other venues?
A: No -- it's an internal memo resolving one audit question about specific facts, not a Private Letter Ruling or General Information Letter, and it predates a relevant 2017 rule amendment.

Citations and references

Statutes:

• Tex. Alco. Bev. Code § 202.02 (mixed beverage gross receipts tax)

Rules:

• 34 Tex. Admin. Code Rule 3.298(a) (definition of amusement service)
• 34 Tex. Admin. Code Rule 3.298(f)(1)-(2) (resale certificates for property integral to a taxable service)
• 34 Tex. Admin. Code Rule 3.293(b)(5) (food; food products; meals; food service)
• 34 Tex. Admin. Code Rule 3.289 (alcoholic beverage exemptions)
• 34 Tex. Admin. Code Rule 3.285 (resale certificates; sales for resale -- amended 11/01/2017, per STAR's own currency alert on this letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200110526L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

October 10, 2001

To: James M. Hilliard, III - Audit Office

From: Gilbert Zamora, Sales Tax Policy

Subject: Hospitality Tent Rentals and Receipts

Taxpayer: **(ST)

This is in response to your request for a ruling on the taxability of the
following fact situation and questions.

Situation:

ST holds competitive racing events at their complex in CITY, Texas. This
includes NASCAR races as well as Indy style races. During these events
corporations pay for hospitality tents where entry is limited to the passes
distributed by the corporations. These passes are for a fee and payable to ST.

ST rents the tents as well as all the property needed to entertain the
corporation and their guests. This property includes TV monitors for race
viewing, utensils for serving, seating and tables etc. The food is catered by
ST's affiliated but separate corporation EVENTS BUSINESS. EVENTS BUSINESS
bills the corporation for the food and beverages.

Please provide reasoning and documentation to support the responses to the
following questions:

1. Should ST charge tax on the admission to the hospitality tents?

Response: Yes, this is considered a charge for an amusement service, i.e. the
closed circuit viewing of the race on the television monitors. This is
analogous to a charge for a closed circuit viewing of a heavyweight boxing
match. The viewing of the car race or boxing match on a closed circuit screen
fits the definition of an amusement service as defined in subsection (a) of
Rule 3.298 - Amusement Services. This section provides in part that an
amusement service is "entertainment, recreation, sport, pastime, diversion, or
enjoyment that is a pleasurable occupation of the senses." The charge for
admission to the hospitality tent, to view the race on closed circuit, eat,
drink and have good time, fits the definition of amusement service, i.e., it is
an entertainment or diversion that is a pleasurable occupation of the senses.

2. Should STs pay tax on the rentals of the property used to provide the
   entertainment to the corporations (Tents, tables, chairs, monitors, etc.)?

Response: Yes. ST may only issue a resale certificate on the purchase of
tangible personal property that is transferred to the care, custody, and
control of the customer. The tents, tables, chairs and monitors are not
considered to be transferred to the care custody and control of ST' customers.

ST may only issue a resale certificate for a taxable service ST transfers the
service as an integral part of the amusement service that ST provides. See
subsection (f)(1) and (2) of Rule 3.298.

3. Should EVENTS BUSINESS charge tax on the catered foods and beverages?

Response: Yes, the charge by EVENTS BUSINESS for catered food and beverages is
taxable. See subsection (b)(5) of Rule3.293 Food; Food Products; Meals; Food
Service. Sales or use tax is not due on the sale of mixed beverages and
gratuities collected on those sales if the receipts are taxable under the Texas
Alcoholic Beverage Code, Section 202.02. See Rule 3.289 - Alcoholic Beverage
Exemptions.