Were buyers'-club fees, amended data-processing contracts, contract extensions, and separately stated finance-lease interest taxable?

Plain-English summary

The letter answered three questions.

Buyers' club

The private-club membership provision in Section 151.007(e) was limited to amusement services under Section 151.0028, so it did not govern this buyers' club. But the club gave members vendors' names and phone numbers, making its fee taxable as an information service beginning October 1, 1987.

Data-processing contract

The company had a preexisting contract with an Iowa data-processing provider and planned amendments. The Comptroller said taxability depended on the amendments and that it was possible only the amendments would be taxable. An extension, however, created a new contract, making all services provided after January 1, 1988 taxable. The request also acknowledged that contract payments after January 1, 1990 were taxable.

Financing-lease interest

Interest charges on financing leases had to be separately stated to the customer to be excluded from the tax base.

What this means for you

The historical letter classified the actual benefit sold, distinguished amendments from extensions, and required separate statement of finance interest. It did not give a blanket answer for every possible contract amendment.

Common questions

Was the buyers' club fee taxable? Yes, as an information service.

Did the amusement-club rule apply? No.

Did any contract amendment make all data processing taxable? Not necessarily; the answer depended on the amendment.

What did an extension do? It created a new contract, making post-January 1, 1988 services fully taxable.

Was finance-lease interest taxable? Not when separately stated.

Citations and references

• Tex. Tax Code § 151.007(e) — private-club membership sale price quoted in the request.
• Tex. Tax Code § 151.0028 — amusement-services definition referenced in the request.
• Tex. Tax Code § 151.0035 — data-processing services amendment referenced in the request.
• Section 36 of the 1987 legislation — prior-contract exemption described in the request.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0883A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller February 2, 1988

Dear *:

Ms. Denise Waiters of our Dallas Audit Office requested that I respond to
some of your questions to her in your letter dated September 18, 1987. I
apologize for the delay, however I've had a tremendous amount of letters
to
respond to over the new legislation.

In regards to the recent changes to the Texas sales tax laws, I ask that
you
provide me with a ruling on the following.

A) Section 151.007 Tax Code added (e) " the sale price of
membership in a private club or organization consist of the
dues, fees, and other charges and assessments, including
initiation fees, required for membership, or a special
privilege, status or membership classification in the club or
organization."

Is this section limited to "amusement services", as defined in
Section 151.0028 of the Tax Code? One of our subsidiaries is
selling membership in a buyers' club. For the membership fee
or annual renewal fee, club members are provided with various
phone numbers of vendors of tangible property and other benefits.
The club is not involved in direct sales, itself. Are membership
dues of the club now taxable?

Answer: Yes, this is limited to amusement services and the club you
described is not covered by that rule. The club provides its members
names and numbers of vendor of tangible personal property. As of
October 1, 1987, this information service is taxable.

B) Section 151.0035 was amended to include as taxable, data
processing services effective January 1, 1988; while Section 36
allows an exemption from the tax for receipts that are the
subject of a written contract or bid entered into on or before
July 21, 1987. Our consumer loan offices are currently under
contract with an Iowa data processing company for purchase of
the services. We plan to amend some of the provisions of the
contract, shortly. Will an amendment or extension to an
existing contract cause its receipts to become taxable? I am
aware that any contract payments after January 1, 1990 are
taxable.

Answer: This will depend on the amendments themselves. It is possible
that only the amendments would be taxable. I have enclosed our rule on
prior contracts for your review. It should answer your question. An
extension would make it a new contract and any services provided after
January 1, 1988 would be taxable in total. I have also enclosed the
data processing rule for your convenience.

C) Are interest charges of financing leases taxable? If the interest
charges are separately stated are they taxable or non-taxable?

Answer: Interest charges on financing leases must be separately stated
to your customer to be excluded from the tax base.

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 our toll-
free number 1-800-531-5441. The regular number is 512/463-4600. You may
write me at the Tax Policy Division.

Sincerely,
F. Wayne McDonald
Tax Policy Division