Is a company that monitors horse races at racetracks with its own personnel and equipment performing a taxable equipment rental or a nontaxable service?

Plain-English summary

A company monitors horse races at racetracks around the United States. It brings its own personnel and its own equipment — cameras, television monitors, and other video gear — and that equipment stays the company's property at all times. The racetrack does not control the company's staff or equipment; the company's own crew operates all the monitoring equipment during the races without direct supervision from the racetrack. The racetrack pays a single lump-sum fee for the service, and the video tapes stay with the company rather than being handed over to the racetrack.

The Comptroller ruled that this arrangement is a nontaxable service, not a taxable rental of equipment. Under Comptroller Rule 3.294(c)(2), furnishing equipment along with an operator for a single charge is presumed to be the performance of a service rather than an equipment lease. Because the company's personnel run the equipment themselves and the racetrack never gains control over it, the arrangement fits that "equipment with an operator" pattern.

That said, providing a nontaxable service does not mean the company itself is off the hook for tax on everything it buys. The Comptroller noted that a provider of nontaxable services must pay sales or use tax on the taxable items it uses to perform those services — for example, the cameras and video equipment. The letter also flags related use-tax rules: tax generally applies to taxable items bought out of state for use in Texas, but credit may be available for a similar tax validly paid to another state, and items bought and used out of state for more than a year before being brought into Texas are not presumed to be for Texas use.

What this means for you

Businesses providing monitoring, camera, or similar equipment-plus-operator services

If you supply your own equipment and your own operators for a single fee, and the customer never gains control over the equipment or the personnel, this letter supports treating the arrangement as a nontaxable service rather than a taxable equipment rental. That distinction matters because it changes how you charge (or don't charge) sales tax to your customer.

Racetracks and other venues buying monitoring services

If you're paying a lump sum to a contractor who brings its own crew and equipment and retains control over both, this letter indicates that charge is for a nontaxable service — the vendor generally would not be charging you sales tax on the arrangement as an equipment lease.

Accountants and tax professionals

The key test in this letter comes from Rule 3.294(c)(2): equipment furnished with an operator for a single charge is presumed to be a service, not a rental. Watch for the facts that made this a service rather than a lease — the provider's own personnel operated the equipment, the equipment never left the provider's control, and there was one lump-sum fee. Also note the flip side: performing a nontaxable service does not exempt the provider from paying sales or use tax on taxable items (like the equipment) used to perform that service, and the letter references related multistate credit and out-of-state-use rules for use tax purposes.

Common questions

Q: Is providing camera and monitoring equipment along with an operator, for one fee, treated as a rental or a service in Texas?
A: Under this letter, it's treated as a nontaxable service. Rule 3.294(c)(2) presumes that furnishing equipment with an operator for a single charge is the performance of a service, not an equipment rental.

Q: Does the racetrack in this letter control the monitoring company's equipment or staff?
A: No. The equipment stays the property of the monitoring company at all times, and the racetrack does not exercise control over the company's personnel or equipment; the company's own crew operates the equipment during races.

Q: If the service itself isn't taxed, does the monitoring company avoid sales tax entirely?
A: No. The letter states that a provider of nontaxable services should still pay sales or use tax on all taxable items it uses to perform those services, such as its cameras and video equipment.

Q: What if the equipment was bought and used out of state before coming to Texas?
A: The letter notes that taxable items purchased and used out of state for more than a year before entering Texas are not presumed to be for use in Texas, and that credit may be available for a similar tax already validly paid to another state.

Citations and references

The original letter does not cite a Texas statute by number. It refers to Texas Comptroller rules: Rule 3.294(c)(2) (rentals and leases — equipment furnished with an operator for a single charge is presumed to be a service), Rule 3.346(b)(1)(A) (use tax on taxable items purchased out of state for use in Texas), Rule 3.346(c)(4) and Rule 3.340 (multistate tax credits), and Rule 3.346(c)(5) (items purchased and used out of state for more than a year before entering Texas are not presumed to be for Texas use).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9404L1294E01

Original ruling text

April 4, 1994

Dear **:

Thank you for your letter of March 23, 1994, concerning the
taxability of race monitoring services provided at
racetracks.

Your client is in the business of providing monitoring
services to racetracks throughout the United States. The
corporation provides its own personnel and equipment, such
as cameras, television monitors, and other video equipment.
The equipment at all times remains the property of the
corporation and the racetrack does not exercise any control
over the client corporation's personnel or equipment. The
firm actually operates all of the monitoring equipment
during the races and is not under the direct control and
supervision of the racetrack. The client corporation
receives a set lump-sum fee for its services and the video
tapes of the races remain the property of the corporation
and are not transferred to the racetrack.

Enclosed Rule 3.294(c)(2), concerning rentals and leases,
states that the furnishing of equipment with an operator for
a single charge is presumed to be the performance of a
service. Your client is performing a nontaxable service and
not a rental of equipment.

Your client, as a provider of nontaxable services, should
pay sales or use tax on all taxable items used in the
performance of its services. Enclosed Rule 3.346(b)(1)(A),
concerning use taxes, imposes use taxes on taxable items
purchased out of state for use in Texas. Rule 3.346(c)(4)
and enclosed Rule 3.340 discusses multistate tax credits
that are applicable when a similar sales or use tax has been
validly paid to other states prior to the Texas use of the
taxable items. Rule 3.346(c)(5) states that taxable items
purchased out of state and used out of state for more than a
year before the date of entry into Texas, will not
be presumed to be made for use in Texas.

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

You may call me toll free at l-800-531-5441, ext. 5-0613.
The direct line is 512/475-0613. You may also write to Tax
Administration Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

NOTE: Previous Accession Number 9404216L