Does a nonprofit club that operates concession stands under a license from a school district have to collect sales tax on its concession sales?

Subject

Concession Stand Sales — Lions Club/Independent Operator Contracts With School District To Operate Stands In Stadium — Sales Are Subject To Tax

Plain-English summary

A club (the requester's name and the club's name are redacted, though the subject line and other STAR indexing identify it as a Lions Club) was licensed by a school district to operate the concession stands at all athletic events held at one stadium. The club was paying sales tax on its own purchases of concession supplies, but it was not collecting sales tax from customers on the concession items it sold, and it asked the Comptroller whether that was the correct procedure.

The Comptroller's answer: no. Sales of taxable items made by an exempt organization are still taxable sales. Being a tax-exempt organization does not exempt the organization's own retail sales of taxable goods -- it exempts certain purchases the organization itself makes, in some circumstances, but not sales it makes to the public. The letter points to Rule 3.322(g)(1) for this rule. Because the club was making retail sales of taxable items (concession stand food and drinks) rather than tax-exempt purchases, the club should have been collecting tax from its customers, or including tax in the stated selling price, rather than absorbing the tax itself on its supply purchases.

The letter also notes a fix going forward: the club may issue a resale certificate to its suppliers so that it can buy the concession items tax-free, since those items are being purchased for resale. The club then collects sales tax (or includes tax in the price) when it actually sells the items to the public at the stadium.

What this means for you

Nonprofit and civic organizations running concession stands

Operating a concession stand -- even under a license or agreement with a school district, and even if your organization otherwise qualifies as tax-exempt -- does not exempt your concession sales from sales tax. You must collect tax from customers (or build it into your prices) on taxable items you sell.

Getting the tax mechanics right

Instead of paying sales tax on your own purchases of concession inventory (soda, candy, hot dogs, etc.) and then not charging tax to customers, the correct approach is the reverse: buy your inventory tax-free with a resale certificate, then collect or include sales tax when you sell those items at retail.

School districts and booster/civic groups licensing stadium concessions

If your organization licenses out concession rights to a club or similar operator, be aware the operator is expected to handle sales tax collection like any other retail seller of taxable goods, regardless of its own nonprofit or exempt status.

Common questions

Q: Our nonprofit is a tax-exempt organization -- does that mean our concession stand sales are tax-free?
A: No. Per this letter, sales of taxable items made by an exempt organization are still taxable. Exempt status relates to certain purchases the organization makes, not to sales it makes to customers.

Q: We've been paying tax when we buy our concession supplies and not charging customers tax -- is that right?
A: No, per this letter that is backwards. The club should instead purchase concession items tax-free using a resale certificate, and then collect tax from customers (or include tax in the selling price) when it resells those items.

Q: How does the club buy concession supplies tax-free?
A: By issuing a resale certificate to its suppliers, since the items are being purchased for resale rather than for the club's own use.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.322(g)(1) (cited in the letter for the rule that sales of taxable items by an exempt organization are 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/9605L1408F07

Original ruling text

May 6, 1996

Dear **:

Thank you for your letter of April 29, 1996. You asked if concession stand
sales made by the ** are exempt.

As I understand it, the * is licensed by the ABC Independent School
District to operate the concession stands at all athletic events held at one
stadium. ** pays tax on purchases but does not collect tax on the
sales price of the concession items. You questioned whether this procedure
is correct.

Sales of taxable items made by an exempt organization are taxable. Please
refer to subsection (g)(1) of Rule 3.322. The club may issue a resale
certificate to purchase, tax free, the items that will be resold. The club
must collect tax or include tax in the selling price of the concession items.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line
is 512/475-0037. You also may write to Sales Tax Policy Division, Comptroller
of Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division

NOTE: Previous Accession Number 9605156L