Can a sports team buy construction materials tax-free for a new city-owned ballpark, if the team purchases the materials and then resells them to the city under the lease deal?

Plain-English summary

The Texas Comptroller ruled that a major league sports team's purchases of construction materials for a new city-owned ballpark are tax-free at both steps of a two-step financing structure: the team's initial purchase of the materials, AND the team's subsequent resale of those same materials to the city.

The city and the team jointly requested this ruling for a ballpark project where the city will own the facility and lease it back to the team through 2054 (with renewal options). Rather than the city buying construction materials directly, the team purchases them and then resells the materials to the city as part of the deal. That structure worked because it lines up with two separate Texas exemptions: first, the team's purchase qualifies as a "sale for resale" (Section 151.006(a)(1)) because the team buys the materials specifically to resell them to the city in the same form — exempt under Section 151.302(a). Second, the team's subsequent sale of those materials to the city is itself exempt under Section 151.309(5), Texas's blanket exemption for sales of taxable items to Texas cities. So the resale exemption covers the first leg, and the governmental-entity exemption covers the second leg — neither purchase nor resale triggers tax.

What this means for you

Municipalities and sports franchises structuring stadium/arena financing

A "team buys materials, then resells to the city" financing structure can achieve full tax exemption on construction materials, stacking the resale exemption (on the team's initial purchase) with the governmental-entity exemption (on the team's resale to the city) — as long as the transaction genuinely follows that two-step form.

Contractors and material suppliers on public-private stadium projects

Understand which party in the transaction chain is claiming which exemption certificate, since this ruling confirms a specific two-step buy-then-resell structure works, rather than a direct city purchase.

Accountants and tax professionals

The two controlling provisions are straightforward and don't require any facts-and-circumstances analysis like the primary-use-and-benefit test seen in other exempt-organization improvement rulings — this is a clean stacking of the general resale exemption (§ 151.302(a)) and the specific governmental-entity exemption (§ 151.309(5)).

Common questions

Q: Does a sports team buying stadium construction materials owe sales tax if it later resells those materials to the city that owns the stadium?
A: Not under this structure. The team's purchase qualifies for the resale exemption because it's buying to resell, and the resale to the city is separately exempt because sales to Texas cities are exempt.

Q: Does the city have to purchase construction materials directly to get the governmental exemption?
A: No — as this ruling shows, a sale of taxable items TO a Texas city is exempt under Section 151.309(5) regardless of whether the seller is the original manufacturer/supplier or an intermediate reseller like the team here.

Q: Can another city/team stadium deal rely on this ruling?
A: No. It's binding on the Comptroller only for the requesting parties and facts presented, and cannot be relied on by any other taxpayer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.006(a)(1) ("Sale for Resale," definition)
• Tex. Tax Code § 151.302(a) (Sales for Resale exemption)
• Tex. Tax Code § 151.309(5) (Governmental Entities exemption — sales to Texas cities)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201801018L

Original ruling text

Jan. 24, 2018

INDIVIDUAL A

City of CITY, Texas

City Manager’s Office

c/o City Manager

CITY, Texas 76004-3231

INDIVIDUAL B

Executive Vice President

COMPANY

CITY, Texas 76011-5170

RE: Private Letter Ruling No. 20180122154210

City of CITY, Taxpayer No. **

Dear INDIVIDUAL A and INDIVIDUAL B:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE: 1] We are responding to your request dated Jan. 22, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of tangible personal property for the construction of a new major league ballpark for the City of CITY, Texas (City).

Facts Presented

We have taken the following facts from your request. Our response is based on these facts as presented.

The City and COMPANY request a taxability ruling relating to tangible personal property purchased for the construction of a new major league ballpark for the City. The City will own the ballpark facility. The COMPANY will play their major league home baseball games at the new ballpark. The City and the COMPANY have entered into a lease agreement in which the City will lease the new ballpark to the COMPANY through the year 2054 with additional options in the future.

The COMPANY will purchase the tangible personal property for the construction of the new ballpark. The COMPANY will subsequently resell that tangible personal property to the City. Construction of the project is currently in progress and is expected to be completed in 2020.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Do the COMPANY’s purchases of tangible personal property for the construction of the new ballpark qualify for the sale for resale exemption provided in Section 151.302(a) (Sales for Resale)?

Ruling One: Yes, the COMPANY’s purchases of tangible personal property for the construction of the new ballpark qualify for the sale for resale exemption provided in Section 151.302(a).

Question Two: Do the COMPANY’s subsequent sales of tangible personal property for the construction of the new ballpark to the City qualify for the exemption provided in Section 151.309(5) (Governmental Entities)?

Ruling Two: Yes, the COMPANY’s subsequent sales of tangible personal property for the construction of the new ballpark to the City qualify for the exemption provided in Section 151.309(5).

Analysis:

Section 151.006(a)(1) (“Sale for Resale”) defines the term “sale for resale” to include the sale of tangible personal property to a person who acquires the property for the purpose of reselling it in the normal course of business in the form or condition in which it was acquired. Section 151.302(a) provides that, “[t]he sale for resale of a taxable item is exempted from the taxes imposed by this chapter.”

Additionally, Section 151.309(5) provides that the sale of a taxable item to a city in Texas is exempt from sales and use tax.

The COMPANY’s purchases of tangible personal property for the construction of the new ballpark meet the definition of a sale for resale under Section 151.006(a)(1) because the COMPANY will purchase the tangible personal property for the purpose of reselling it and the COMPANY will then resell the tangible personal property to the City. Therefore, the COMPANY may purchase tangible personal property for the construction of the ballpark tax free under the resale exemption. Section 151.302(a).

Section 151.309(5) specifically exempts sales of taxable items to cities in Texas. Thus, the subsequent sales of tangible personal property from the COMPANY to the City are likewise exempt from Texas sales and use tax pursuant to Section 151.309(5).

The Texas Tax Code and Texas Administrative Code are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20180122154210.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.