If a concert venue gives a sponsor a VIP box seat and advertising in exchange for a sponsorship payment, does the venue owe sales tax on the box seat, and how much?

Plain-English summary

A company that owns an outdoor amphitheater sells VIP box seats for concerts at a normal price of $10,000 per box for the year. Some sponsors instead pay the venue $100,000 or more per year, and in exchange the venue gives that sponsor a box seat plus advertising throughout the year's events. The venue asked whether the box seat given to the sponsor is taxable.

The Comptroller answered yes. Because a box seat normally sells for $10,000, that is its fair market value, and the venue must report and remit sales tax on amusement services in that amount when it gives a box to a sponsor as part of the sponsorship deal. The ruling also says the venue cannot back out any part of that $10,000 as a nontaxable service — even though the box seat package includes things like valet parking (itself a taxable parking service), waiter/waitress service, and special seating — because all of that is bundled into, and priced as part of, the box seat.

What this means for you

Venue operators and amusement-service providers

If you barter or bundle a paid admission or box seat into a sponsorship, advertising, or promotional deal, you still owe sales tax on the amusement service based on its fair market value — typically what you'd normally charge for the same seat or access. You cannot reduce that taxable amount by carving out ancillary services (parking, catering, wait staff, special seating) that are included in the price, since the whole bundle is treated as taxable amusement services.

Accountants and tax professionals

When valuing non-cash consideration received in a sponsorship arrangement, look to the seller's own regular selling price for the same item (here, the $10,000 box seat rate) as the fair market value for sales tax purposes. Rule 3.298(a)(5) and (7) governs which components of an amusement-service bundle are taxable and confirms no allocation is required for included, non-severable amenities.

Common questions

Q: The sponsor didn't pay $10,000 directly for the box — they paid $100,000 or more for a broader sponsorship package. Why is $10,000 the taxable amount?
A: The ruling treats the box seat as taxed at its fair market value, which is the $10,000 price the venue normally charges to sell that same box seat. The larger sponsorship payment covers the box seat plus other benefits (like advertising), but the amusement-service tax is based on what the box itself is worth.

Q: Can the venue subtract out the value of valet parking, waiter service, or special seating from the taxable amount?
A: No. The ruling states there is no reduction for these non-amusement services because they are included in the price of the box seat.

Q: Who owes the tax in this scenario — the venue or the sponsor?
A: The ruling addresses the venue (referred to as "COMPANY A"), which is directed to report and remit the tax on the amusement services it provides to the sponsor.

Citations and references

Statutes and rules:

• Tax Code § 151.011(b)
• 34 Tex. Admin. Code Rule 3.298(a)(5), (7)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1227E06

Original ruling text

DATE: February 24, 1993

TO: Susan Vong, *****

FROM: Gilbert Zamora, Tax Administration Division

SUBJECT: *****

FACT SITUATION

Taxpayer owns the outdoor Amphitheater in CITY A. TP sells VIP box seats
for concerts. The selling price (admission) per box is $10,000 a year.
However, sponsors, such as SPONSOR, gives COMPANY A $100,000 or more a
year and in return, COMPANY A gives SPONSOR a box seat and advertisement
throughout the events for the year.

Is the use of the box given to SPONSOR taxable to COMPANY A?

RESPONSE

Yes, COMPANY A should report tax on the amusement services given to
SPONSOR based on the $10,000 fair market value of the box seats.

There is no reduction for non-amusement services included in the $10,000
for valet parking (a taxable vehicle parking service), waiter/waitress
service, special seating, etc., since these services are included in the
price of the box seat.

REFERENCES: 151.011(b); Rule 3.298(a)(5), (7)