Were private-club locker, room, boat-slip, golf-cart, bag-storage, and minimum food-and-beverage charges taxable in Texas?

Plain-English summary

An association asked the Comptroller to reverse its policy taxing private-club charges for golf-cart storage, locker rentals, room rentals, bag storage, boat-slip rentals, and minimum food-and-beverage commitments.

The Comptroller refused. Tax Code § 151.007(e) included dues, fees, assessments, initiation fees, and other charges required for a special privilege, status, or membership classification in the sales price of private-club membership. Rule 3.298(b) applied that language to the listed club privileges.

The charges were taxable whether or not separately stated. Minimum food-and-beverage charges were taxable even when a member did not actually dine, because the payment bought the privilege of dining at the club.

The letter rejected an analogy to Wessely Energy Co. v. Bullock, a natural-gas production-tax case involving take-or-pay charges, because the governing statutes and considerations were different.

What this means for you

Private clubs

Separating facility or storage charges from base dues did not remove them from the taxable membership price when they purchased special club privileges.

Accountants and tax professionals

For minimum-spend arrangements, the letter taxed the purchased privilege rather than actual consumption. Track the contractual entitlement, not just what the member used.

Common questions

Were locker and room rental charges taxable? Yes.

Were golf-cart, golf-bag, or boat storage charges taxable? Yes.

Were food-and-beverage minimums taxable if unused? Yes.

Did separately stating these charges change the result? No.

Citations and references

• Tex. Tax Code § 151.007(e) (sales price of private-club membership)
• 34 Tex. Admin. Code Rule 3.298(b) (private-club privileges and fees)
• Wessely Energy Co. v. Bullock (natural-gas take-or-pay case distinguished by the letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1157F09

Original ruling text

February 6, 1992

Dear **:

Thank you for your recent letter, in which, acting on behalf of the
ASSOCIATION, you request the reversal of the Comptroller's policy that the
sales price of a taxable amusement service includes charges to club members for
golf cart storage, locker rental fees, room rentals, and bag storage. To
accomplish this policy change, Rule 3.298 (b) (which states that these charges
are taxable as privileges of membership in a private club) would have to be
amended. However, it is our position that this provision should not be amended
because it is a reasonable construction of the broad statutory definition of
the sales price of an amusement service.

You assert that fees for golf cart storage, locker rentals, room rentals, and
bag storage constitute charges for the rental of real property and may not be
subjected to tax You argue against our interpretation of the following
provision in the Tax Code:

The sales price of membership in a private club or organization consists 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. Tax Code Section 151.007 (e).

Contrary to Rule 3.298 (b), you offer an alternative interpretation of this
section that would exclude from the tax base all charges to members except
charges for the base membership and for the privilege to engage in additional
club activities (for example, tennis, golf, and dining). You suggest that this
is what the legislature "obviously meant".

However, it remains our position that our consistent interpretation of Tax Code
Section 151.007 (e) (as reflected in Rule 3.298 [b]) is wholly reasonable and
consistent with the legislative intent. Charges to club members for locker
rental, golf cart or bag storage, or boat slip rental (for example) constitute
"other charges and assessments . . . required for . . . a special privilege . .
. in the club or organization." Using a locker and storing a boat, golf cart,
or golf bag in club facilities are special privileges of club membership for
which consideration is given. The statute on its face says that this
consideration is part of the sales price of the club membership. Therefore,
such a charge is taxable to a club member whether or not it is separately
stated from other membership charges.

This same analysis applies to the minimum periodic charges for food and
beverages. This charge is expressly included in the taxable sales price of the
club membership as a charge for a special privilege in the club (that of dining
at club facilities). It does not matter whether the member actually avails
himself or herself of the privilege by consuming food or beverages at the club.
He or she paid in advance for the privilege of so doing, and that is what the
statute taxes.

These minimum food and beverage charges are not comparable to the "take-or-pay"
charges that the Travis County District Court in Wessely Energy Co. v. Bullock,
et al said could not be included in a producer's gross cash receipts under the
natural gas production tax. The governing statutes and considerations are
fundamentally different.

This opinion is based on the facts presented. Different facts, though similar,
might lead to different answers. If you have further questions, feel free to
write or call me at 463-3889.

Sincerely,

John Christian
Attorney
Tax Administration Division