How did Texas sales tax apply to clowning, party decorations, giveaways, rentals, cleanup, and out-of-state decorating work?

Plain-English summary

The Comptroller answered twelve questions for a proposed clowning and party-decorating business:

• Appearing as a clown was a nontaxable personal service.
• The clown had to pay tax on trinkets and balloons given away with that nontaxable service. If sold for a separate charge, they could be bought for resale and the customer paid tax on the sales price.
• Out-of-state purchases used in Texas were subject to state and local use tax unless bought for resale. If the seller did not collect the proper Texas taxes, the buyer had to accrue and report them based on first storage, use, or consumption.
• Decorating with disposable items was taxable. The decorator could buy the decorations for resale and collect tax on decorations and decorating. Separately stated clowning remained nontaxable, but one lump-sum charge covering clowning, decorating, balloons, and trinkets was fully taxable.
• Supplying decorations without decorating was a taxable sale. Decorations left with the customer and reusable decorations retrieved after the event were treated as sales or rentals, with the decorating charge included in the taxable total.
• Cleanup was part of the taxable service and was taxable either with the rental or as a real property service.
• For the stated one-location Texas business, local collection included its home-city sales tax plus applicable county or transit use taxes where it worked, subject to the two-percent local cap described in the letter.
• Texas tax was not due from the customer on taxable sales, services, or rentals taken outside Texas for resale if the business kept proof they left the state. Inputs acquired in Texas for the business's own nontaxable service remained taxable.
• An out-of-state decorator or clown working in Texas needed a Texas permit and had to collect applicable state and local tax; without a Texas place of business, local tax followed delivery.
• A balloon wholesaler also needed a Texas permit and had to collect tax or accept a valid resale or exemption certificate.

What this means for you

Separately stating nontaxable clowning mattered. Combining it with taxable decorating and goods in one price made the entire stated package taxable under this letter.

Common questions

Was clowning at a birthday party taxable? No.

Were decorating services taxable? Yes.

Could giveaway balloons be bought for resale? Not when given away as part of the nontaxable clowning service; a separate taxable sale could qualify.

Was cleanup taxable? Yes, as part of the rental or as a real property service.

Did an out-of-state business working in Texas need a permit? Yes.

Citations and references

• Comptroller Rule 3.346 — use tax
• Comptroller Rule 3.285 — resale certificates and rentals
• Comptroller Rule 3.356 — real property services
• Comptroller Rule 3.287 — exemption certificates

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1044D05

Original ruling text

September 13, 1990

Dear **:

We received your letter containing questions on when to charge or pay sales
tax. According to your letter, you are planning to start your own business
clowning for parties or trade shows. You may also provide decorations or
decorate for these parties or trade shows.

Below are your specific questions and our response:

1. I am a clown for a child's birthday party. Do I charge sales tax for my
   service?

Response: No. Your charge for appearing at a party as a clown is a non-taxable
personal service.

2. I buy trinkets and balloons from a wholesaler to give away at the child's
   birthday party. Do I pay sales tax to the wholesaler or does the customer pay
   sales tax on the items used in the party?

Response: You should pay sales tax to the wholesaler for items that you give to
the customer as part of your non-taxable service. However, if you charge the
customer a separate charge for the trinkets and balloons, then you may issue
the wholesaler a resale certificate and charge tax to your customer on your
sales price for the balloons and trinkets.

3. I buy trinkets and balloons from an out-of-state wholesaler (through the
   mail). When and to whom is the sales tax paid?

Response: You owe state and local use taxes on the sales price of the balloons
and trinkets unless you are purchasing them for resale. If the wholesaler has a
Texas tax permit and bills you for the appropriate Texas taxes, then you should
pay the wholesaler the taxes due. If the supplier only bills the State tax due,
then you are required to accrue the appropriate local taxes due and remit the
local taxes directly to the State.

If the wholesaler does not bill Texas use taxes, then you must report tax on
the sales price of the taxable items in the period the taxable items are first
stored, used, or otherwise consumed in Texas. Local taxes are due based on the
location of the first storage, use, or other consumption in this State. See the
enclosed Rule 3.346 relating to use tax.

4. I decorate for the party as well. The decorations are all disposable and
   cannot be used again. Do I pay sales tax when buying the decorations or do I
   charge the customer sales tax on the decorations?

Response: You may issue your wholesaler a resale certificate for the tax on the
decorations and charge tax to your customer on your charge for the balloons,
trinkets, and decorating services. If you separate the charge for your clowning
services, then the clowning services would not be taxable. If you charge one
lump-sum charge for the clowning services, decorating services, balloons, and
trinkets, then the total charge is taxable.

5. I only provide decorations for the party; I do not decorate. Do I charge the
   customer sales tax?

Response: Yes. You may issue your supplier a resale certificate for decorations
and collect tax from your customer on the total sales price for the
decorations. Enclosed is a copy of Rule 3.285 relating to resale certificates.

6. I decorate for the party but the decorations are not all disposable. The
   customer will keep, say, the centerpieces. Who pays sales tax on which items?

Response: You may issue your supplier a resale certificate for the tax on the
decorations and collect tax from your customer on the total sales price for the
decorations and your decorating services. You are reselling the disposable
decorations and the decorations that you leave with the customer. See the
enclosed Rule 3.285 relating to resale certificates.

7: I buy raw materials for use in decorations. They can be used over and over,
so I always retrieve them after a party and use them over. Who pays sales tax
on the materials and when?

Response: If the raw materials are used in decorations that you are reselling
or renting, then you may issue a resale certificate for the tax on the raw
materials and charge your customer tax on the total charge for the decorations
and decorating services. You are renting items that you retrieve. See section
(a) of the enclosed Rule 3.285.

8. After a party that I decorated for is over, I go back and clean up all of
   the decorations (throwing away some, retrieving some for re-use). Is this
   considered just a part of the service or am I now a cleaning service and
   subject to different rules?

Response: This is a part of your service. Any additional charges for cleaning
up the decorations would be taxable as either part of the rental or as real
property services under Rule 3.356.

9. My business is based in the city of ** but I actually decorate
   in another city. How does this affect the way I charge/pay city sales tax?

Response: If you only have one place of business located inside the city limits
of **, then you should collect 6.25% state sales tax and 1%
** city sales tax on all your taxable items. You will also be
required to collect any applicable county and transit use taxes for the other
areas you go into to provide your services. For example, if you went to Fort
Worth to decorate for a party, you would also be required to collect the .5%
Fort Worth MTA use tax. However, you should not collect more than 2% local
taxes. See the enclosed booklet and guidelines on collecting local taxes and
allocating local taxes.

10. My business is based in Texas but I decorate or clown for a customer in
    another state. How does this affect the way I charge/pay sales tax?

Response: No Texas tax is due from your customer on your charges for your
taxable items, such as, services, sales, or rentals taken outside Texas for
resale. You may issue a resale certificate on taxable items taken out-of-state
for resale. However, you must keep documentation showing that the taxable items
went outside Texas.

You must pay Texas tax on items you purchase and take possession of in Texas
that are not for resale, such as, balloons that you use in performing your
non-taxable clowning service. You also must pay tax on taxable items you
purchase for use in Texas.

11. Suppose my business is based in another state but I decorate or clown for a
    customer in Texas. What do I do about the state or city sales tax?.

Response: You would be required to obtain a Texas tax permit and collect and
remit the applicable state and local taxes. If you do not have a place of
business in Texas, then the local taxes would be due based on where the taxable
items were delivered.

12. Since I buy and use many balloons for my decorations, I decide to become a
    wholesale distributor of balloons for my area. Do I need a special permit and
    are there any other rules I need to be aware of?

Response: You will be required to obtain a Texas tax permit and collect the
applicable tax, or a valid resale or exemption certificate on your sales of
balloons. Enclosed is a copy of Rule 3.287 relating to exemption certificates.

In each of the situations above where you are required to collect and remit
tax, or issue or accept a resale certificate, you will be required to obtain a
Texas tax permit. Therefore, I have sent you a sales tax permit application
under separate cover.

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

If you have any questions you may call or write Tax Correspondence. You may
call toll free 1-800-252-5555, or our regular number is 512/463-4600. My
extension is 3-4658.

Sincerely,

Sherry Buckley
Tax Correspondence