A city owns a golf course but hires an independent private company to operate it under a management agreement giving the company exclusive use and day-to-day control of the facility. Are the green fees the company charges golfers exempt from Texas sales tax as a municipal amusement service, or taxable?

Plain-English summary

A city owns a golf course but hired an independent company ("GOLF COMPANY") under a management agreement to operate it. The taxpayer asked whether green fees charged by GOLF COMPANY are exempt as a municipal amusement service, since the underlying facility is city-owned.

The Comptroller walked through the exemption chain: golf courses are taxable amusement services under Rule 3.298, and Texas exempts amusement services only when they're exclusively provided by a municipality (Sec. 151.3101(a)(1)) — but that exemption narrows under Sec. 151.3101(b) once a municipality contracts with an outside entity to provide the service, leaving only purely educational amusement services still exempt in that scenario.

The Comptroller found the operating agreement decisive on the "exclusive provider" question. Key contract terms: the city gave GOLF COMPANY exclusive use and occupancy of the facility; GOLF COMPANY was responsible for insurance, day-to-day operations, and even "the collection and payment of all appropriated taxes"; and the contract expressly stated GOLF COMPANY was not an agent or employee of the city, but an independent contractor, with neither party authorized to bind the other. Because of this structure, the city is not the exclusive provider of the amusement service at the facility — GOLF COMPANY is — so the municipal exemption doesn't apply, and GOLF COMPANY must collect sales tax on the green fees.

What this means for you

Cities outsourcing recreational facility operations

Simply owning a facility (a golf course, pool, or similar amusement venue) doesn't preserve the municipal amusement-services exemption if you hand day-to-day operation to an independent contractor with exclusive use/occupancy — the operator, not the city, becomes the taxable service provider.

Private companies operating city-owned recreational facilities

If your management agreement establishes you as an independent contractor (not the city's agent) with exclusive use of the facility, expect to be the one responsible for collecting sales tax on amusement charges like green fees — the city's ownership and tax-exempt status don't pass through to you.

Accountants and tax professionals

A clean example of how Sec. 151.3101(b)'s narrowing provision operates: the municipal exemption for amusement services requires the municipality itself to be the exclusive provider, and specific contract language (independent-contractor status, exclusive use/occupancy, day-to-day operational responsibility) is what decides whether that's still true once a private operator is involved.

Common questions

Q: Are green fees at a city-owned golf course exempt from Texas sales tax?
A: Only if the city itself is the exclusive provider of the amusement service. If an independent contractor operates the course under its own exclusive-use agreement, the fees are taxable.

Q: Does calling the operator a "contractor" in an agreement matter, or just who actually runs the course?
A: Both the label and the operational reality matter — this letter relied on contract language expressly designating the operator as an independent contractor (not an agent), plus its exclusive use/occupancy and day-to-day operational control.

Q: Is there any amusement-service carve-out that survives a municipality contracting out the service?
A: Yes — amusement services provided exclusively for educational purposes remain exempt even when a listed municipal entity contracts with an outside operator.

Q: Can I rely on this letter for my own facility-management agreement?
A: No. It's based on the specific facts and contract terms presented and can be relied on only by the taxpayer to whom it was issued; other facts, even if similar, may produce a different result.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.309(5) (exemption for taxable items sold to or purchased by a municipality)
• Texas Tax Code Section 151.010 (definition of taxable items)
• Texas Tax Code Section 151.0101(a)(1) (amusement services as taxable services)
• Texas Tax Code Section 151.3101(a)(1) (exemption for amusement services exclusively provided by a municipality)
• Texas Tax Code Section 151.3101(b) (narrowing the exemption when a listed entity contracts out amusement services)
• 34 Tex. Admin. Code Rule 3.298 (golf courses as taxable amusement services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9908623L

Original ruling text

August 9, 1999

Dear Ms. **:

Thank you for your recent letter concerning the taxability of green fees
charged by ** ("GOLF COMPANY") under an agreement with the
** ("CITY") to operate **, the city-owned golf course
("FACILITY").

Tax Code 151.309(5) exempts taxable items sold to or purchased by a
municipality. Texas Tax Code 151.010 defines taxable items to include tangible
personal property and taxable services. Texas Tax Code 151.0101(a)(1) defines
taxable services to include amusement services. Texas Tax Code 151.3101(a)(1)
exempts amusement services exclusively provided by a municipality. Rule 3.298
defines golf courses as taxable amusement services.

Texas Tax Code 151.3101(b) narrows the exemption for amusement services
provided by entities listed in 151.3101(a)(1) when those entities contract with
other entities not listed therein for the provision of the amusement services.
Only amusement services that are exclusively for educational purposes remain
exempt when provided by a listed entity in 151.3101(a)(1) contracting with
an entity not listed in Texas Tax Code 151.3101(a)(1).

Paragraph 2 under Services to be Performed by GOLF COMPANY requires GOLF
COMPANY to operate the facility which included "...the purchase and maintenance
of insurance coverage...the collection and payment of all appropriated taxes
and the performance of all other day-to-day activities relative to the
FACILITY." This paragraph also specifies that: "CITY hereby grants to GOLF
COMPANY the exclusive use and occupancy of the FACILITY during the term of this
Agreement or any renewal hereof for said purposes."

Paragraph 12 under Indemnity states that the "Parties agree that GOLF COMPANY
is not an agent or employee of CITY, and all activities of GOLF COMPANY
relating to the FACILITY shall be in GOLF COMPANY's capacity as an independent
contractor to CITY."

Paragraph 17 addresses the Relationship of the Parties:

The relationship between CITY and GOLF COMPANY shall be and at all times remain
that of CITY and independent contractor, respectively. Neither CITY nor GOLF
COMPANY shall be construed or held to be a partner, limited partner, associate
or agent or the other, or be joint venturers with one another. Neither CITY nor
GOLF COMPANY shall be authorized by the other to contact any debt, liability or
obligation for or on behalf of the other.

The agreement shows that the CITY is not the exclusive provider of the
amusement services at the facility.

We conclude that under this agreement, GOLF COMPANY, as an independent
contractor, was the provider of the amusement services and had the
responsibility under sales tax law and this agreement to collect sales tax on
the green fees.

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 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. My direct line is 512/463-4683. You may
also write to the Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division