How did Texas tax party entertainment, decorating labor and materials, sales to exempt organizations, and unpaid customer bills?

Plain-English summary

The Texas Comptroller gave a party-service provider several distinct answers:

• Admissions to amusement services had become taxable on October 2, 1984, but the provider's charge to a client for furnishing entertainment was nontaxable if the provider was not selling admissions.
• Separately stated labor to decorate an area was nontaxable.
• Decorative materials were taxable, and one combined charge for labor and materials made the entire amount taxable.
• A nongovernmental exempt organization was exempt only for purchases related to its exempt function. The provider therefore had to tax decorative materials, including balloons, sold or rented outside that protected use.
• The seller's responsibility for an unpaid taxable bill depended on its accounting method. A cash-basis seller did not remit tax it never collected. An accrual-basis seller initially paid the tax and could claim credit when it recognized the bad debt for income-tax purposes.

What this means for you

Invoice structure mattered: separately stating decorating labor preserved its nontaxable treatment, while bundling labor with materials made the full charge taxable. Entertainment supplied directly to a client was also different from selling taxable admissions.

Common questions

Was a charge for providing entertainment taxable? Not when the provider was not selling admissions to the entertainment.

Was decorating labor taxable? Separately stated labor was not taxable.

Were decorations and other materials taxable? Yes.

What if labor and materials appeared as one charge? The total charge was taxable.

Were all sales to an exempt organization exempt? No. For a nongovernmental exempt organization, the purchase had to relate to its exempt function.

How did an unpaid bill affect tax? Cash-basis and accrual-basis sellers followed different rules stated in the letter.

Citations and references

• Comptroller Rule 3.298 — Amusement Services.
• The letter states October 2, 1984 as the effective date when admissions to amusement services became taxable.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0816E12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 20, 1987

Dear ***:

Thank your for your recent letter regarding the various party related
services you perform.

Effective October 2, 1984, admissions to amusement services became
taxable.
You stated that you provide entertainment for all occasions, but from
your
letter it does not appear that you are selling admissions to the
entertainment. If this is correct, the charge to your client for
providing
the entertainment is not taxable. I am enclosing a copy of Rule 3.298
for
your reference.

Separately stated charges for your labor to decorate an area would not be
taxable. However, your charges for materials would be taxable. If you
make
a single charge for labor and materials, the total charge is taxable.

When you sell or rent decorative materials (including balloons) to an
exempt
organization other than a governmental entity, you must never-the-less
charge
them tax. These organizations are exempt from tax only when they
purchase
items that relate to their exempt function.

When you make a taxable sale, the tax is added on and becomes part of the
selling price. You are responsible for collecting and remitting the tax.
If
a purchaser does not pay his bill at all, your tax responsibilities would
be
governed by your method of accounting. If you are on a cash basis of
accounting you would not pay the tax unless you collect the bill. If you
are
on an accrual basis you would pay the tax initially and take credit on
your
return when you recognize the bad debt for income tax purposes.

I'd like to apologize for the responses you received from my coworker.
It's
our goal to give prompt accurate information to all our taxpayers without
being curt.

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,
AL Van Allen
Tax Policy Section
Tax Administration Division