Were lump-sum convention tour packages taxable in Texas, and what if amusement tickets dominated the charge?

Plain-English summary

The Texas Comptroller ruled that a convention-service company's lump-sum package of city tours, local transportation, meals, entertainment events, parties, gifts, and favors was not taxable to the customer.

The provider still had to pay tax when buying taxable inputs, including catered meals, restaurant meals, and taxable amusement tickets.

The result changed if the customer charge was mainly the cost of tickets to an amusement such as Six Flags. In that situation, the entire amount billed was taxable as the sale of an amusement admission, including applicable city and Metropolitan Transit Authority taxes. The provider could then buy the tickets for resale by giving the seller a resale certificate.

The letter also said a related company's consulting and management services were not taxable. When that company paid hotel and meal bills for clients, the Comptroller assumed the applicable taxes were paid on those taxable items.

What this means for you

Destination-management and convention companies

A broad lump-sum service package was nontaxable under this 1985 ruling, but a package dominated by amusement admissions was fully taxable.

Tour and event planners

Nontaxable billing to the customer did not eliminate tax on taxable purchases used to provide the package.

Accountants and tax professionals

The ruling turns on the substance of the customer charge. It does not give a numerical threshold for when ticket costs become the package's main component.

Common questions

Q: Was the ordinary lump-sum convention package taxable?
A: No, on the facts presented.

Q: Did the company owe tax when buying meals or event tickets?
A: Yes. The letter says the provider had to pay tax on taxable items and services it purchased for the package.

Q: What if most of the customer charge represented amusement tickets?
A: The entire bill became taxable as the sale of amusement admissions.

Q: Could the provider buy those tickets tax-free for resale?
A: Yes, in the ticket-dominated transaction, by giving the ticket seller a resale certificate.

Citations and references

The letter cited the Texas Limited Sales and Use Tax Law generally but no specific section or 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/8501L0616B13

Original ruling text

January 8, 1985

Dear ***:

Thank you for your letter of December 20, 1984 regarding the taxation of
charges made by your convention service company.

It is my understanding that your company arranges and conducts tours of
CITY, arranges local transportation, meals and entertainment events,
for conventioneers visiting the city. You also arrange parties and
arrange gifts and favors.

This service is not taxable under the Texas Limited Sales and Use Tax
Law. If a lump-sum amount is billed to your customers (to individuals
or the group's organization) that covers the entire entertainment/tour
package, no sales tax would be due from your customers.

If you purchase a taxable item or service to perform your service, you
must pay the sales tax. For example, a fee charged by a caterer to you
would be taxable as well as meals at a restaurant. Also, if you
purchase tickets to Six Flags or a sporting event, you would pay the tax
due on such purchases.

If there were ever an instance when the charge to your customer was
mainly composed of the cost of tickets to an amusement (such as tickets
to Six Flags), this transaction would be regarded as the sale of
admissions to an amusement service and the entire amount billed to your
customer would be subject to state sales tax and applicable city and
Metropolitan Transit authority taxes. In this case, you could purchase
the tickets tax-free by giving a resale certificate to the ticket seller.

The services of your other company, *** , which include
consulting and management services, are not taxable services. When this
company pays bills for its clients, such as for hotels and meals, it is assumed
that sales tax and other state taxes are paid on taxable items.

This opinion is based on the facts presented. It there are additional or
different facts, the opinion may change.

You may write me at the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division