Does a Texas sorority owe sales tax on meals served to its members, and are its membership fees and dues taxable?

Plain-English summary

A sorority house asked the Texas Comptroller whether it owes sales tax on meals it serves to its members, and understood that student board (regular meals) wasn't taxable while only guest meals were. The Comptroller corrected that understanding: meals served to both resident and guest members of a sorority house are taxable.

The ruling relies on Rule 3.293 (Food Products; Meals; Food Service), which taxes meals served by "boarding houses" -- defined using a dictionary as "a lodging house at which meals are provided" -- as well as meals sold by colleges, universities, and other schools of higher learning. Because Texas law has no specific exemption for meals sold by sororities, fraternities, or similar organizations, the sorority house's meal charges are subject to sales tax whether the diner is a resident member eating all week, a member eating there once a week, or a guest.

The letter also addresses a separate question about membership dues, referencing an earlier 1991 Comptroller letter about House Bill 11. That law imposed sales tax on initiation fees and dues collected by Section 501(c)(7) nonprofit organizations that provide amusement services to members -- aimed mainly at private country clubs. Because the sorority is also a 501(c)(7) organization, the Comptroller confirmed its membership fees and dues are not taxable as amusement services. However, the sorority still must collect and report sales tax on its other taxable sales, such as food, t-shirts, and dance admissions.

What this means for you

Fraternity and sorority house operators

If your house serves meals to resident or guest members, sales tax applies to those meal charges -- it does not matter that the house is run on a non-profit basis or that meal fees just cover food cost. At the same time, if your organization is a 501(c)(7) nonprofit, your initiation fees and membership dues are not taxed as amusement services. You do still need to collect and remit sales tax on other taxable items and services you sell, such as food, apparel, and event admissions.

Accountants and tax professionals

This ruling distinguishes two different tax questions that often get conflated for club-like organizations: (1) taxability of meals under the boarding-house/school-meals provisions of Rule 3.293, which has no carve-out for Greek organizations, and (2) taxability of membership dues under House Bill 11's amusement-services rule for 501(c)(7) entities, which does exempt dues even though it doesn't exempt other sales. Advise clients that "non-profit" status alone does not exempt meal sales.

Common questions

Q: Does a sorority owe sales tax on the meals it serves to student members who live in the house?
A: Yes. Rule 3.293 taxes meals served by boarding houses, and a sorority house serving meals to resident members fits that definition. There is no exemption in the statute for meals sold by sororities, fraternities, or similar organizations.

Q: What about meals served to guests, rather than resident members?
A: Those are taxable too -- the ruling states sales tax is due on charges attributable to meals served to both residents and guests of the sorority house.

Q: Are membership fees and dues taxable?
A: No, not as amusement services. House Bill 11 imposed a sales tax on initiation fees and dues collected by Section 501(c)(7) nonprofit organizations providing amusement services, but the Comptroller confirmed this sorority's membership fees and dues are not taxable under that provision, since the law was primarily aimed at private country clubs.

Q: If dues aren't taxable, does the sorority have any other sales tax collection duties?
A: Yes. The organization must still collect and report sales tax on its other taxable sales -- the letter specifically mentions food, t-shirts, and admissions to dances.

Citations and references

Rules cited:

• 34 Tex. Admin. Code Rule 3.293 (Food Products; Meals; Food Service), Sections (b)(3) and (4) -- taxes meals served by boarding houses and meals sold by colleges, universities, and other schools of higher learning

The letter also references "House Bill 11" and an October 18, 1991 Comptroller letter to a named house corporation regarding taxation of Section 501(c)(7) organization dues, but does not cite a specific statute section for that provision.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1224C09

Original ruling text

February 24, 1993

Dear ***:

This is in response to your letter requesting written confirmation of the
taxability of meals served to sorority members at their sorority houses.

SITUATION

The sorority house is operated on a non-profit basis for the use of its
university student members and is used for organization meetings and gatherings
by its active student membership. About one-fourth of its active student
members live in the sorority house and eat all week-day meals there. Other
members eat there once a week. The meal fees go directly toward the cost of the
meals. Your understanding is that there is no sales tax on board for students
and that sales tax is only required for guest meals sold by the sorority house.

RESPONSE

Sections (b)(3) and (4) of the enclosed Rule 3.293 - Food Products; Meals; Food
Service, provide that sales tax is due on meals served by boarding houses and
meals sold by universities, colleges, junior colleges and other schools of
higher learning. A boarding house is defined as "a lodging house at which meals
are provided" (Webster's New Collegiate Dictionary, 1977 Edition). There is no
exemption in our statute for meals sold by sororities, fraternities and other
similar organizations. Therefore, sales tax is due on the charges attributable
to the meals served to residents and guests of your sorority house.

House Bill 11, referenced in Mr. Sharp's October 18, 1991, letter to Epsilon
Rho House Corporation, imposed a sales tax on initiation fees and dues
collected from members of Section 501(c)(7) non-profit organizations providing
amusement services to members. This legislation primarily affected private
country clubs, however, since your corporation is a Section 501(c)(7)
organization, Mr. Sharp wanted to assure you that your membership fees and dues
would not be taxable as amusement services. Your organization must still
collect and report sales taxes on sales of food, t-shirts, admissions to
dances, etc.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information, you may call me at
1-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division