Were practice charges and tournament entry fees at a Texas remote-controlled-car race track subject to sales tax?

Plain-English summary

A hobby shop and remote-controlled-car race track needed a Texas sales and use tax permit. Charges for customers to operate cars on the track, including practice-session fees, were taxable amusement services.

Tournament entry fees were not taxable if either of two conditions applied: the fee substantially exceeded normal facility-use charges, the person paid to compete, and part funded the contest and prizes; or the person would not normally use or pay for the facility except to participate in the contest.

The business also had to collect tax on hobby-item sales, customer charges for assembling models, and model repairs. Both parts and labor were taxable on repairs.

What this means for you

Ordinary track access and genuine competition entry were treated differently. The facts had to show that the fee was for participating in a contest, not merely paying to use the facility.

Common questions

Were practice-session charges taxable? Yes, as amusement services.

Were all tournament entry fees exempt? No. They had to satisfy one of the two contest conditions stated in the letter.

Were model assembly and repair charges taxable? Yes, including both parts and labor for repairs.

Citations and references

The letter cited no specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1162B13

Original ruling text

March 24, 1992

Dear **:

Thank you for your interest in starting a new business in *.
You will need a sales and use tax permit if you open a hobby shop
and a remote-controlled car race track. The necessary application
has been sent to you under separate cover.

The charge for people to operate remote-controlled cars on your
track, such as the practice session mentioned in your letter, is a
taxable amusement service. If you hold race tournaments in which
contestants pay entry fees to compete, then the entry fees would
not be taxable if the fees meet one of the following provisions:

The fee substantially exceeds what would normally be paid for
using the facility, the person is paying to compete in a contest,
and part of the fee goes toward the cost of conducting the contest
and for prizes; or

An individual would not normally use the facility, or pay a
fee except for the purpose of participating in a contest.

Besides collecting and remitting tax on the sales of hobby items
and amusement services, you will also need to collect tax from
your customers on any charge for assembling their models. In
addition, you will need to collect tax if you repair models for
your customers. The charges for both parts and labor are taxable
when you repair the models.

I hope this satisfactorily answers your questions. Should you
have any further questions, please contact David Somerville in my
Tax Administration Division at 1-800-531-5441, extension 5-0030.

Sincerely,

JOHN SHARP
Comptroller of Public Accounts