When a Texas nonprofit festival sells tickets that attendees redeem with food vendors, are the ticket and food sales taxable, and who must collect the tax?

Plain-English summary

The Texas Comptroller said the nonprofit's sale of 50-cent festival tickets was not taxable. Tax applied when attendees used the tickets to obtain food and drinks, unless one of the letter's stated nonprofit-sale exemptions applied.

Religious, educational, or charitable organizations that qualified for sales-tax exemption could hold a tax-free sale on one day each calendar year. Other nonprofit groups exempt from paying sales tax still had to collect tax on taxable sales. The letter also allowed any volunteer nonprofit group one tax-free annual food sale if members prepared, sold, and served the food and the sale did not compete with retailers required to collect tax; alcoholic beverages remained taxable.

Each vendor could hold a sales-tax permit and report its own sales. If the vendors did not, the festival sponsor would be responsible for collecting and reporting the tax.

What this means for you

The exemption did not follow merely from being nonprofit. The organization's qualification, the number and timing of sales, who prepared and served the food, competition with taxable retailers, and whether alcohol was sold all mattered. A sponsor using a common ticket system also could not assume that vendors alone carried the collection duty.

Common questions

Was selling the festival tickets taxable? No.

Were food and drink purchases made with the tickets taxable? Yes, unless one of the letter's stated nonprofit-sale exemptions applied.

Could every nonprofit hold one tax-free sale? The letter distinguished qualified religious, educational, or charitable organizations from other nonprofit groups. It separately described a one-day annual food-sale rule for volunteer nonprofit groups, subject to preparation, service, and competition conditions.

Who had to report the tax? Each permitted vendor could report its own tax. If vendors did not hold permits and remit the tax, the sponsoring organization was responsible.

Citations and references

• Comptroller Rule 3.286 — seller responsibilities.
• Comptroller Rule 3.293 — food, food products, meals, and food service.
• Comptroller Rule 3.322 — exempt organizations.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8703L0800A10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller March 4, 1987

Dear ****:

Thank you for your letter of February 10, 1987 concerning the taxability
of the
situation outlined as follows.

This firm represents a nonprofit organization whose primary source of
revenue is an annual festival. A portion of our client's income may be
subject to sales tax.

1. Client will sell tickets to the general public at a unit price of 50
   cents.

2. General public will "purchase" food and drink by using the tickets as
   payment.

3. Vendors will purchase all materials, supplies, food and drink.

4. Vendors will accept only tickets sold by client in payment of food and
   drink.

5. Client will redeem tickets from vendors at a unit price of 45 cents.

Response:
Organizations which qualify for exemption from payment of the sales tax
as
religious, educational or charitable in nature, may hold a tax-free sale
on
one day each calendar year. Other nonprofit groups, although qualified
as
exempt from payment of the sales tax, must collect sales tax on all sales
of
taxable items.

All volunteer, nonprofit groups may hold one tax-free annual food sale if
the food is prepared, sold, and served by members of the organization and
is
not in competition with other retailers required to collect the tax (this
does not apply to alcoholic beverages, which are taxable.)

Sale of the tickets is not taxable. However, sales tax must be collected
on
the selling of the food when the tickets are redeemed or used to
purchase the food and drinks, unless exempt as outlined previously. If
each
vendor does not hold a sales tax permit and remit the tax collected to
the
Comptroller on the vendor's sales tax return, the organization sponsoring
the event will be held responsible for collecting and reporting the sales
tax.

Rule 3.286 Seller's Responsibilities, Rule 3.293 Food; Food Products;
Meals;
Food Service and Rule 3.322 Exempt Organizations are enclosed for your
reference.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Julie Pesl
Tax Policy Section
Tax Administration Division