Does a Texas city owe sales tax on its sewage/wastewater charges, and how should a city handle sales tax on amusement services and related packages like 'Party Buddies'?

Subject

Sewage Or Wastewater Service — City'S Charge For Sewage Service Is 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/9402L1286G07

Plain-English Summary

A city wrote to the Comptroller asking about its Texas sales tax responsibilities. The Comptroller's response addressed two separate issues.

First, sewage service: Texas sales tax law taxes garbage collection as a real property service, but the definition of "garbage" in Rule 3.356(a)(3) does not include domestic sewage. So a city's charge for sewage service is not taxable — and that holds true even if the city labels the charge "waste water service" rather than "sewage service." The label doesn't matter; what matters is that it's domestic sewage, not garbage.

Second, amusement services and bundled packages: Amusement services provided by a municipality are exempt from sales tax under Rule 3.298(g)(1)(D). However, municipalities must still charge sales tax on sales of other taxable items — the ruling gives examples of food for immediate consumption, party favors, ice cream sundries, and soft drinks. When a city sells a package that bundles a taxable item with a nontaxable item, the charges for nontaxable items need to be stated separately from the charges for taxable items. Applying this, the city was told it must collect and remit sales tax on the single charge for its "Party Buddies" packages (because the charge wasn't broken out), but the city does not have to collect tax on a separately stated charge for admission to an amusement service, such as a park, shelter, or zoo.

What This Means For You

If you are a city or municipality billing for sewage/wastewater service: Your sewage charges are not subject to Texas sales tax, regardless of what you call the service on the bill (sewage service or wastewater service) — domestic sewage falls outside the taxable definition of garbage.

If you are a city or municipality selling amusement admissions along with taxable items: Admission to a municipal amusement service (like a park, shelter, or zoo) is exempt. But if you bundle that admission with taxable items — such as food, party favors, or other concession items — into one combined package price, the entire combined charge becomes taxable unless you separately state the nontaxable admission charge from the taxable items.

If you sell package deals like "Party Buddies": A single, non-itemized charge covering both taxable and nontaxable components will be treated as fully taxable. Break out the pricing so the exempt admission/amusement portion is clearly separate from the taxable food, favors, or merchandise portion.

Q&A

Q: Does a city owe sales tax on charges for sewage or wastewater service?
A: No. The definition of "garbage" under Rule 3.356(a)(3) does not include domestic sewage, so a city's charge for sewage service is not taxable — even if the city calls it "waste water service."

Q: Is admission to a city park, shelter, or zoo taxable?
A: No. Amusement services provided by a municipality are exempt from sales tax under Rule 3.298(g)(1)(D), as long as the admission charge is separately stated from any taxable items sold alongside it.

Q: Why did the city have to collect sales tax on its "Party Buddies" packages?
A: Because the package was sold for a single, bundled charge rather than separately stating the nontaxable amusement admission from the taxable items (like food, party favors, ice cream sundries, or soft drinks) included in the package. Nontaxable charges must be separately stated from taxable charges, or the whole charge becomes taxable.

Citations

• 34 Tex. Admin. Code § 3.356(a)(3) (definition of "garbage" for garbage collection services, which excludes domestic sewage)
• 34 Tex. Admin. Code § 3.298(g)(1)(D) (exemption for amusement services provided by a municipality)

Original ruling text

February 24, 1994

Dear *****:

Thank you for your letter of February 9, 1994, concerning the city's Texas and
local sales tax responsibilities.

The sales tax law taxes garbage collection services as a real property service.
The definition of garbage found in Rule 3.356(a)(3) does not include domestic
sewage. A city's charge for sewage service is not taxable, even if referred to
as waste water service.

Amusement services provided by a municipality are exempt sales tax under Rule
3.298(g)(1)(D) concerning amusement services. Municipalities are required to
charge sales tax on sales of other taxable items. Sales of food for immediate
consumption, party favors, ice cream sundries, soft drinks, etc., are taxable.

Charges for nontaxable items should be separately stated from the charges for
taxable items.

The city should collect and remit sales tax on the single charge for "Party
Buddies" packages. The city will not have to collect sales tax on a separately
stated charge for admission to an amusement service (e.g., * Park,
* Shelter, or zoo).

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division

NOTE: Previous Accession Number 9402063L