Were membership dues for a home-service equipment library taxable in Texas?

Plain-English summary

The Texas Comptroller said membership dues paid to the described home-service club were not taxable.

The club operated as an equipment library. Members paid dues, could check out automotive, plumbing, lawn, garden, and home-maintenance tools without a separate checkout charge, and could use the membership repeatedly subject to restrictions on lending equipment to nonmembers or using it for them.

Although equipment rentals were normally taxable, the Comptroller treated this club's described arrangement as a nontaxable service. The club nevertheless had to pay sales tax when it purchased all items for the business.

What this means for you

Equipment libraries and membership clubs

The conclusion depended on the specific membership model: recurring access with no per-checkout charge and restrictions on nonmember use.

Members

The dues were nontaxable under the facts presented in the letter.

Accountants and tax professionals

The club was the taxable purchaser of its equipment even though its membership service was nontaxable.

Common questions

Q: Were the membership dues taxable?
A: No.

Q: Did members pay a separate equipment-checkout charge?
A: No, according to the request included with the ruling.

Q: Did the club buy its tools and equipment tax-free?
A: No. The Comptroller said sales tax was due when all business items were purchased.

Q: Did the ruling apply to ordinary equipment rentals generally?
A: No. It noted that equipment rentals are normally taxable and addressed this club's specific service model.

Citations and references

• The letter cites no statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8411L0626E09

Original ruling text

November 5, 1984

Dear ***:

Thank you for your letter of October 10, 1984, regarding the taxation of
membership dues to your club.

It has been determined that the membership dues are not taxable.
Although equipment rentals are normally taxable, your club, as
described, is regarded rentals to be offering a nontaxable service.
However, sales tax is due at the time of purchase of all items for this business.

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

Please feel free to contact us if you have additional questions. You
may call toll free 1-800-252-555 from anywhere in Texas

Sincerely,

Tax Administration Division

October 10, 1984

Comptroller of Public Accounts
Attention: Tax Policy
Capitol Station
Austin, TX 78774

Ladies and Gentlemen:

I have a question regarding my business CLUB XYZ. Are the
members of my club required to pay sales tax on their membership dues?

XYZ is an equipment library. Members check equipment out of the club
in the same fashion as a person checks books out of a library. There
is no check out charge and the member may check out as many different
items as he or she likes. The member may also use his membership as
often as he or she likes. The only restrictions involved are that he
or she not loan his or her XYZ equipment out to non-members or use it
for non-members.

The inventory of equipment consists largely of automotive tools,
plumbing tools, lawn and garden equipment, and other items used in
home maintenance, home repair, etc.

If you need any additional information to make a decision please call
me at my business phone number, **.

Respectively