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Ezel / Tax Rulings / TX
TX 8408L0585B12 Sales and/or Use Tax (State,Local,MTA) 1984-08-31

How long did Texas protect pre-October 2, 1984 fitness-club membership contracts, and what happened when annual contracts renewed?

Short answer: Monthly-dues contracts with an initial fee that were entered into and effective before October 2, 1984 were untaxed only through September 30, 1987; after that, all fees were taxable regardless of contract date. An annually renewable contract became taxable when renewed after October 1.

Apply this to your situation

This page answers the general question as of 1984. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1984
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Fitness-club contracts with monthly dues and an initial fee were untaxed when entered into and effective before October 2, 1984, but only through September 30, 1987. After that date, all fees were taxable regardless of contract date.

An annually renewable contract became taxable when renewed after October 1. The letter viewed that arrangement as a fixed-term contract with renewal fees set in the original agreement.

What this means for you

The old-contract protection was temporary, and renewal could end the protection before its outside expiration date.

Common questions

Q: How long did the grandfather rule last? A: Through September 30, 1987.

Q: What happened to an annual contract renewed after October 1? A: Tax became due.

Citations and references

  • Tex. Tax Code Ann. Sec. 151.339 (preexisting contracts).

Source

Original ruling text

August 31, 1984

Dear **:

Thank you for your letter dated August 27, 1984 concerning existing contracts
for your membership fees.

Tax is not due on contracts that have monthly dues with an initial fee entered
into and in effect prior to October 2, 1984. However, this exemption is only good
until September 30, 1987. After that time all fees will be taxed regardless of
contract date.

Tax is due on the annually renewable contract if it is renewed after October 1. As
I see this type of contract, it is a contract for a period of time with fixed
renewal fees stipulated in the original contract.

I have enclosed a copy of the recent legislative changes. The section that applies
to preexisting contracts is on page 14, TEX. TAX CODE Ann. 151.339.

This opinion is based upon the facts you presented. If there are additional or
different facts, this opinion may change.

If you need more information you can call 1-800-252-5555 or write.

Sincerely,

Tom Gay
Tax Policy Section
Tax Administration Division

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