Is a school choir's sale of 'Music Cards' -- which give the buyer a discount on future CD/audio tape purchases -- subject to Texas sales tax?

Plain-English summary

A school choir contracted with a company to sell "Music Cards" as a fundraiser. Buyers pay a set price per card, with the choir keeping a portion of each sale as its fundraising proceeds. The card itself doesn't deliver any music — instead, it entitles the purchaser to a discount on future CD and audio tape purchases from the vendor.

The Comptroller ruled that the card is an intangible and is not subject to sales tax. Because the card is really just a right to a future discount rather than tangible personal property, selling it isn't a taxable sale. That said, the exemption is limited to the card itself: when a cardholder later actually orders and pays for CDs or audio tapes using their discount, that later purchase of physical media is a taxable sale of tangible personal property in the ordinary way.

What this means for you

Schools, booster clubs, and nonprofit fundraising organizers

If your fundraiser sells a "membership," "discount," or "VIP" card that only confers a right to a future discount — and doesn't itself hand over any tangible goods — that card sale can be treated as a nontaxable sale of an intangible, similar to this Music Cards program. But remember the underlying goods purchased later using the discount remain fully taxable.

Accountants and tax professionals

This is a useful, narrow precedent for "pay now, discount later" fundraising products: the discount right/card is intangible and untaxed, but it doesn't convert the later taxable retail sale into something tax-exempt.

Common questions

Q: Is selling a discount card for a school fundraiser taxable in Texas?
A: Not per this letter, if the card is purely an intangible right to a future discount rather than tangible personal property.

Q: Do purchasers still pay sales tax on the CDs/tapes they eventually buy with the discount?
A: Yes — per this letter, that later purchase of physical media is a normal taxable sale of tangible personal property, made when the purchaser orders and pays the vendor.

Q: Would this analysis change if the card itself contained music or other tangible content?
A: This letter only addresses a card that confers a discount right with no tangible media on the card itself; a different fact pattern (e.g., a card that is itself a physical product with value) isn't addressed here.

Citations and references

No specific Tax Code section or Comptroller rule number is cited in this letter; the Comptroller applied its general taxable-tangible-property vs. nontaxable-intangible distinction to these facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9810954L

Original ruling text

October 28, 1998

Dear Mrs. **:

Mrs. ** has asked about the sales tax treatment of charges for
"Music Cards". Mrs. ** asked that we respond to you.

She said that the ** School Choir has contracted with a company to
sell music cards for $** each. The choir will get $**
from each sale. The sale of the card allows the purchaser a discount on their
purchases of CDs and Audio tapes.

The card will be considered an intangible and not subject to sales tax.
Purchasers of the music media will owe sales tax on their purchases when they
order and make payment to the vendor.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division