Is the membership fee for an auto club roadside assistance plan (towing, out of gas, flat tire, lockout, travel expense reimbursement) subject to Texas sales tax?

Subject

Auto Club Roadside Assistance Plan (Towing, Out Of Gas, Flat Tire) — Membership Fees Are Not Taxable

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9307L1249A04

Plain-English Summary

An auto club wrote to the Comptroller because it was paying monthly sales tax on its membership fee income. The membership fee funds a roadside assistance plan whose benefits include emergency road service — towing, out of gas, emergency lockout protection, and flat tire — plus emergency travel expense reimbursement (food, lodging, and alternative transportation) when a member's vehicle is disabled due to a collision or a warrantable repair more than 100 miles from home.

The Comptroller's response was simple: the membership fees are not taxable. Because the auto club had apparently been collecting sales tax from its customers on this income, the letter instructed it to contact those customers and refund the tax collected in error. The letter explained the club could recoup that over-collected tax by taking a credit on a later sales tax return, or by amending its returns for the period of the over-collection, and noted that the statute of limitations for doing so is four years. The Comptroller enclosed Rule 3.325 for reference.

As with other letter rulings, the response notes it is based on the facts submitted, and that other facts, though similar, may yield a different result.

What This Means For You

Auto club / roadside assistance membership fees are not taxable. If your business charges a membership fee that entitles members to roadside assistance benefits like towing, lockout service, flat-tire changes, running-out-of-gas service, or travel expense reimbursement when a vehicle is disabled away from home, this letter indicates that fee income is not subject to Texas sales tax.

If you've been collecting tax on this kind of fee, you may owe refunds to customers. The letter directs a business in this position to contact customers and refund any sales tax collected in error on membership fee income.

There's a mechanism — and a deadline — for recovering over-collected tax. The letter describes two ways to recoup tax already remitted on this income: take a credit on a subsequent sales tax return, or amend the returns covering the over-collection period. Both are subject to a four-year statute of limitations.

Rule 3.325 governs the refund/credit process. The Comptroller pointed the taxpayer to Rule 3.325 for the mechanics of refunds, credits, and the statute of limitations — useful background if your business needs to unwind tax it mistakenly charged on similar membership income.

Q&A

Q: Are auto club membership fees for a roadside assistance plan subject to Texas sales tax?
A: No. The letter states plainly that the membership fees are not taxable.

Q: What benefits were included in the roadside assistance plan described in the letter?
A: Emergency road service covering towing, running out of gas, emergency lockout protection, and flat tire, plus emergency travel expense reimbursement (food, lodging, and alternative transportation) when a vehicle is disabled due to collision or warrantable repair more than 100 miles from home.

Q: What should the auto club do if it had already been collecting sales tax on these membership fees?
A: Contact its customers and refund the tax collected in error.

Q: How can the business recover sales tax it mistakenly collected and remitted on this income?
A: By taking credit on a subsequent sales tax return, or by amending its returns for the period of the over-collection.

Q: Is there a time limit on recovering the over-collected tax?
A: Yes. The letter states the statute of limitations is four years.

Q: Does this ruling guarantee the same result for every auto club or membership plan?
A: No. The letter notes the opinion is rendered based on the facts submitted, and other facts, though similar, may yield different results.

Original ruling text

July 13, 1993

Dear *****

Thank you for your recent letter which is restated in part with response
below.

The ** is presently paying a monthly sales tax on its membership
fee income in the State of Texas. Membership fee income is generated from a
*** roadside assistance plan. Benefits of this plan include emergency
road service covering such items as towing, out of gas, emergency lockout
protection and flat tire. The plan also includes emergency travel expense
reimbursement, to cover food, lodging, and alternative transportation when a
vehicle is disabled due to collision or warrantable repair, occurring more than
100 miles from home.

Response: The membership fees are not taxable. If you have been
collecting the tax from your customers, you should contact your customers and
refund the tax collected in error. You may re-coup the tax by taking credit on
a subsequent sales tax return or amending your returns for the period of the
over collection. The statute of limitations is four years. I am enclosing Rule
3.325 for your reference.

This opinion is rendered based on the facts you submitted. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or write. You
may reach me by calling toll free, (800) 531-5441 (ext. 34680). My direct line
number is (512) 463-4680. The number for FAX transmissions is (512) 475-0900.
You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9308044L.2 and/or 9308044L