Is the compensation a receiving racetrack pays a sending racetrack for simulcasting a horse or dog race, for wagering purposes, subject to Texas sales or use tax?

Subject

Racetracks — Simulcast Services Of Horse/Dog Races For Wagering Purposes — Taxable As Of 7/1/93

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1240C02

Plain-English Summary

This June 2, 1993 letter from Nancy Werkenthin, Supervising Auditor for Pari-Mutuel Audits in the Comptroller's Audit Division, addresses how Texas sales and use tax applies to "simulcasting" — the live telecast or other transmission of audio and visual signals of a horse or dog race from a "sending track" to a "receiving location," so that wagering can take place on that race at the receiving location. Simulcasting was authorized when the Texas Racing Act was amended by the Legislature in 1991, and Section 1.03 of the Racing Act supplies the definition quoted above.

After reviewing the racing statute and simulcasting contracts, the Comptroller's Tax Administration Division determined that the compensation (fees or commission) that a receiving track pays to a sending track for the simulcast is subject to sales and/or use tax under Texas Tax Code Sections 151.0033 (Cable Television Services) and 151.0101 (Taxable Services). The letter then walks through three common simulcasting arrangements:

1. Texas track to Texas track. When a Texas track sends its races to another Texas track, the sending track must collect sales tax on the compensation it charges the receiving track, and report that amount on its own sales and use tax return.

2. Out-of-state track to Texas track. When a Texas track receives a race from an out-of-state track, and sales tax was not paid to the out-of-state track, the Texas (receiving) track must accrue use tax on the compensation it pays, reporting the amount on its sales and use tax return under "cost of items purchased for your use."

3. Hub-track scenario. When a Texas track (Track X) acts as a hub — receiving a race from an out-of-state track and then re-transmitting it to other Texas tracks (Tracks Y and Z) — Track X must accrue use tax on the compensation it pays to the out-of-state sending track (if sales tax wasn't already paid to that track), AND must separately collect sales tax from Tracks Y and Z on the compensation those tracks pay Track X.

Because the Comptroller had only recently addressed this area, the letter instructs tracks to begin collecting and accruing sales/use tax on simulcasting starting July 1, 1993, and states that tax would not be assessed on simulcasts that occurred before that date. Copies of Rule 3.313 (Cable Television Services) and Rule 3.346 (Taxable Purchases) were enclosed with the letter for reference.

What This Means For You

If you operate a Texas racetrack that sends simulcasts to other Texas tracks

You are responsible for collecting sales tax on the compensation (fees/commission) the receiving track pays you for the simulcast, and reporting that tax on your own sales and use tax return.

If you operate a Texas racetrack that receives simulcasts from out-of-state tracks

You must self-accrue use tax on the compensation you pay the out-of-state sending track, unless that track already charged you sales tax. Report the accrued amount under "cost of items purchased for your use" on your sales and use tax return.

If your track acts as a relay hub between an out-of-state track and other Texas tracks

You have obligations on both sides of the transaction: accrue use tax on what you pay the out-of-state track (if untaxed), and separately collect sales tax from the downstream Texas tracks you re-transmit the race to.

If you are an accountant or tax professional advising a racetrack client

The effective date matters: the letter directs tracks to begin collecting/accruing this tax for simulcasts occurring on or after July 1, 1993, and states that tax would not be assessed on simulcasts that took place before that date. Rule 3.313 (Cable Television Services) and Rule 3.346 (Taxable Purchases) are the implementing regulations referenced in the letter.

Q&A

Q: What is "simulcasting" under this letter?
A: Per Section 1.03 of the Texas Racing Act (as quoted in the letter), simulcasting is "the telecast or other transmission of live audio and visual signals of a race, transmitted from a sending track to a receiving location, for the purpose of wagering conducted on the race at the receiving location."

Q: Under what statutes is simulcast compensation taxable?
A: Texas Tax Code Sections 151.0033 (Cable Television Services) and 151.0101 (Taxable Services), based on the Comptroller Tax Administration Division's review of the racing statute and simulcasting contracts.

Q: If a Texas track sends a race to another Texas track, who collects the tax?
A: The sending track collects sales tax on the compensation charged to the receiving track and reports it on its own sales and use tax return.

Q: What happens if a Texas track receives a simulcast from an out-of-state track?
A: If sales tax wasn't paid to the out-of-state track, the Texas receiving track must accrue use tax on the compensation paid, reported under "cost of items purchased for your use."

Q: What if a Texas track is just a hub, passing an out-of-state race along to other Texas tracks?
A: The hub track (Track X) must accrue use tax on what it pays the out-of-state sending track (if untaxed) and must also collect sales tax from the downstream Texas tracks (Tracks Y and Z) on the compensation they pay it.

Q: When did tracks need to start collecting or accruing this tax?
A: Beginning July 1, 1993. The letter states that tax would not be assessed on simulcasts that occurred before that date.

Original ruling text

June 2, 1993

Dear ***:

As you are aware, the Texas Racing Act was amended in 1991 by the Texas
Legislature. Among the changes was the authorization of wagering on
simulcast races. Section 1.03 of the Texas Racing Act defined simulcasting
as "the telecast or other transmission of live audio and visual signals of
a race, transmitted from a sending track to a receiving location, for the
purpose of wagering conducted on the race at the receiving location."

A review of the racing statute and simulcasting contracts by our Tax
Administration Division determined that the compensation (i.e., fees or
commission) the receiving track(s) pays to the sending track is subject
to sales and/or use tax under the Texas Tax Code Sections 151.0033 (Cable
Television Services) and 151.0101 (Taxable Services).

In order to help you concerning your tax reporting responsibilities in
this area, I have described various simulcast situations which have
previously occurred:

1) A Texas track sends its races to another Texas track. The sending
track should collect sales tax on the amount of compensation charged to
the receiving track. This amount should be reported by the sending track
on their sales and use tax return.

2) A Texas track receives a race(s) from an out-of-state track. If sales
tax is not paid to the out-of-state track, the Texas track should accrue
use tax on the amount of compensation paid to the out-of-state track.
This amount should be reported on their sales and use tax return under
"cost of items purchased for your use".

3) A Texas track (track X) is a hub for a race(s) from an out-of-state
track. The Texas track receives the race(s) from out-of-state and sends
the race(s) to other Texas tracks (tracks Y and Z). Track X should accrue
use tax on the amount of compensation paid to the out-of-state track, if
sales tax is not paid to that track. Track X should collect sales tax
from tracks Y and Z on the compensation amount.

Since we have just recently addressed this area, you should begin
collecting and accruing the sales and/or use tax for all simulcasting
beginning July 1, 1993. Tax will not be assessed on any 5 simulcasts that
have occurred prior to this date. Enclosed are copies of Rule 3.313 -
Cable Television Services and Rule 3.346 Taxable Purchases for your
reference.

If you have any additional questions, please feel free to contact me
toll-free at 1-800-252-5555, extension 5-0245.

Sincerely,

Nancy Werkenthin
Supervising Auditor, Pari-Mutuel Audits
Audit Division

NOTE: Previous Accession Number 93070038.5 and/or 9307038L