For an entertainer expanding into catering, room rental, and party equipment rental for company parties, which charges are subject to Utah sales tax and which are exempt services?

Plain-English summary

A businessperson who already provided entertainment for company parties wanted to expand into food catering, room rental (booking hotel/restaurant space), and rental of party supplies, games, and equipment. They laid out five specific scenarios and asked the Commission to sort out the sales tax treatment of each -- worried in particular about "unfair competition" if bundling exempt entertainment with taxable catering forced them to charge sales tax on the whole package, unlike a pure entertainer who could bid tax-free.

General framework. Utah taxes meals sold (§ 59-12-103(1)(e)), admission/user fees for entertainment and amusement activities (§ 59-12-103(1)(f)), and leases/rentals of tangible personal property (§ 59-12-103(1)(k)). Entertainment provided alone is a nontaxable service. But critically, if a nontaxable service charge (like entertainment) is combined into ONE lump charge with a taxable charge (like catering) on the same bill, the Commission treats services essential to a taxable charge as inseparable from it -- the ENTIRE bundled amount becomes taxable, the same way a theater ticket can't be split into a taxable "seat" charge and a nontaxable "actors' performance" charge. The fix is simple: state the entertainment charge SEPARATELY from any taxable charge.

Situation-by-situation:

• Situation 1 (entertainment + catering, client supplies the room): No "admission" is conveyed since you're not granting the right to enter a place, so each charge is analyzed separately. Catering is taxable as a sale of meals, plus applicable tourism tax (and resort tax in places like Park City/Alta). Entertainment remains nontaxable -- but only if stated as a separate line item; combined into one undifferentiated charge, the whole thing is taxed.
• Situation 2 (entertainment charged alone, including subcontracted performers): Confirmed nontaxable, as a pure service charge.
• Situation 3 (you provide both the room AND entertainment to a company, whose employees attend FREE): Because the company is buying the SOLE right to use the room from you, Utah Admin. Rule R865-19S-33(D) treats that as a rental of the entire place, not a sale of "admissions" by you -- so you are not considered a seller of taxable admissions. Both your room-rental charge and your entertainment charge to the company are nontaxable.
• Situation 4 (same as Situation 3, but the company itself charges ITS employees admission to attend): Same result as Situation 3 for YOUR charges to the company -- still nontaxable, because the company (not you) has acquired the sole right to use the room. However, Rule 33(D) then requires the COMPANY to collect sales tax on whatever it charges its own employees to attend, if that event is the type where admittance counts as a taxable admission.
• Situation 5 (equipment rentals -- balloon slides, climbing walls, carnival games): Rentals of tangible personal property are generally taxable under § 59-12-103(1)(k) and Rule R865-19S-32(B), EVEN if you provide someone to set up or take down the equipment. But Rule 32(D) carves out a key exception: if your rental charge includes a person who OPERATES the equipment (not just sets it up), the lessee never acquires the right to possess/operate/use the property themselves -- so the charge is treated as a nontaxable service instead of a taxable rental (the classic example given: a crane rented WITH its operator). This means a balloon slide or climbing-wall rental with an operator supervising usage is nontaxable, but the same equipment rented WITHOUT an operator (e.g., for the client's own employees to run) is a taxable rental. And even if the company charges its own employees a taxable admission to use rented (no-operator) equipment, the COMPANY still can't claim the resale exemption to rent the equipment tax-free from you -- the company itself is treated as the "consumer" of the rental, not a reseller, because its employees are buying admission to an activity, not the equipment rental itself.

What this means for you

Event, entertainment, and party services businesses bundling multiple offerings

Always itemize your invoice: state entertainment charges separately from catering, room rental, and no-operator equipment rental charges. A single lump-sum price covering both taxable and nontaxable elements makes the WHOLE charge taxable -- itemization is the only way to preserve the exempt status of the service portions.

Businesses booking event space and providing it to a client company for free employee events

If a company buys the sole right to use a room/venue from you (rather than you selling admissions directly to attendees), your charges for that room AND any bundled entertainment can both be nontaxable -- but if the company turns around and charges ITS employees for admission, the company itself (not you) becomes responsible for collecting sales tax on those admission charges.

Party/event equipment rental companies (bounce houses, climbing walls, carnival games)

Providing a trained operator who runs the equipment (not just delivers/sets it up) converts a taxable rental into a nontaxable service. If you rent equipment without an operator to a company that then charges its own employees admission to use it, your rental to the company stays fully taxable -- the company cannot use a resale exemption to buy the rental tax-free, since its employees are purchasing event admission, not the equipment itself.

Common questions

Q: If I bundle entertainment and catering into one price, is the whole thing taxable?
A: Yes, unless you separately state the entertainment charge from the taxable catering charge on the invoice.

Q: If a company buys my room rental and entertainment services for a free employee event, do I charge sales tax?
A: No. Because the company acquires the sole right to use the room, you're not considered a seller of admissions, so both charges to the company are nontaxable.

Q: If that same company then charges its employees to attend, who collects sales tax on those charges?
A: The company does, not you -- your charges to the company remain nontaxable, but the company must collect tax on the admission price it charges its own employees (if that type of event counts as a taxable admission).

Q: Does renting out equipment like a balloon slide or climbing wall avoid sales tax if I include a supervising operator?
A: Yes -- a rental that includes an operator who actually runs/operates the equipment is treated as a nontaxable service, unlike a bare equipment rental.

Q: Can a company that rents equipment from me tax-free using a resale exemption, if it charges its own employees admission to use it?
A: No. The company is treated as the ultimate consumer of the rental (its employees are buying event admission, not the equipment), so it cannot claim a resale exemption on the rental.

Q: Does this ruling apply to my event or entertainment business?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission analyzes bundled service/rental/admission charges for party and event businesses.

Citations and references

Statutes and rules:

• § 59-12-103(1)(e) (sales tax on meals)
• § 59-12-103(1)(f) (sales tax on admission/user fees)
• § 59-12-103(1)(k) (sales tax on leases and rentals)
• Utah Admin. Rule R865-19S-33(A) (definition of admission)
• Utah Admin. Rule R865-19S-33(D) (sole right to use a place is not a taxable admission)
• Utah Admin. Rule R865-19S-32(B), (D) (rental of tangible personal property; rental with an operator is nontaxable)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/99-026.pdf

Original ruling text

99-026

Response
August 23, 2000

REQUEST LETTER

99‑026

March 11, 1999

RE: Advisory
Opinion Request

Dear Mr. Chapman:

I request a written response on how some tax issues
should be handled. Your prompt response would be appreciated.

I am considering the sales of food (catering), rental
of party supplies, games, and/or contracting to provide a room for the party
(at hotel or restaurant), in addition to entertainment I currently provide to
businesses (for company parties).

Situation 1: If
I sell entertainment and food catering, what parts of my billings are subject
to sales tax? I understand if I do not
itemize sales, the entire charge would be subject to sales tax. However, I feel it would be unfair
competition if I would be required to charge sales tax on the entertainment
portion the invoice (if listed separately).
For example, if a catering company
bid on providing food for a company party (taxable sale), and an entertainer
bid (exempt from sales tax (service))
on the same party; it would be unfair
if I had to charge sales tax on my entire package price for the same services.

For example would it be correct for me to invoice:

Entertainment 500.00

Food ($8.95 x 200 people) 1,790.00

Sales Tax on food 113.67

Tourism Tax on food __ 7.90__

Total Charge $2,421.57

If the entire amount is subject to sales tax, how much
of the amount is subject to tourism tax?

Situation 2: Is
it true that if I charge for performing (for a company summer party) or
providing

entertainment (other performers subcontracted out) no
sales tax is due? The billing is to the company for the entertainment.

Situation 3: If
I schedule a room for the entertainment what charges are taxable? What taxes
are due? For example is this correct:

Entertainment 500.00

Banquet Room 700.00

Sales Tax on Room __ 44.45__

Total Charge $1,244.45

Or is the total charge subject to sales tax as an
admission? Remember I am selling this
to a company for a party given to its employees. The employees come to the
party free of charge.

Situation 4: If
an admission is charged by the business (hiring my services) to employees, then
would my services be exempt for resale (assuming I receive a completed sales
tax exemption certificate)?

Situation 5: Rentals
of chairs, tables, games and equipment, by me to a company, would be subject to
sales tax. What about the rental of a
balloon slide that requires an operator to set it up and supervise its
usage? Would this be a sales tax exempt
rental (rental with an operator) or considered an exempt service? If I provided carnival midway type games and
ran them would the sale be an exempt service?
If I rented the games to the company, to be run by their employees,
would the rental transaction be taxable?
What about a balloon climbing wall (rental with an operator)? The person climbing is placed in harness,
which is attached to ropes (watched or held by operator), as person attempts to
climb a balloon wall. If the person
climbing the wall slips and falls the ropes and harness stop their fall. Is this rental of this equipment to a
business (for a company party) exempt because it is rented with an operator?

Or is the charge to the company considered to be a
taxable admission charge such as that for an amusement park ride?

RESPONSE
LETTER

August 23, 2000

NAME

ADDRESS

RE: Advisory
Opinion Request - Sales Tax on Entertainment Charges

Dear Sir or Madam,

You have requested an advisory opinion concerning the
application of sales tax on various charges you make in your entertainment business. Applicable to your questions is Utah Code
Ann. '59-12-103(1), which provides that a sales and use tax
is levied on the purchaser for the amount paid or charged for the following:

(e) meals
sold;

(f) admission
or user fees for ... shows of any type or nature, . . . carnivals, amusement
parks, amusement rides, circuses, menageries, fairs, ... water slides, . . . or
any other amusement, entertainment, recreation, exhibition, cultural, or
athletic activity; . . . [and]

(k) leases
and rentals of tangible personal property[.]

In addition, subsection (A) of Utah Admin. Rule R865‑19S‑33
(ARule 33") provides that Aadmission," pursuant to section 103(1)(f), Ameans the right or privilege to enter into a place.@

You are correct that charges for providing entertainment
alone is not subject to taxation because it is a nontaxable service. However, services that are an essential part
of a charge where that charge itself is subject to sales tax are generally
considered a part of that taxable charge and cannot separately be excluded from
taxation. For example, the cost of a
ticket to see a play would be fully taxable as an admission. The cost for that ticket could not be
itemized to separate the charge for the right to a seat in the auditorium from
the charge for the actors= acting services, with sales tax applied to the former
but not the latter. Given these
guidelines, we address the situations you describe in your letter as follows.

Situation 1. In this situation, you would supply
entertainment and food for a client.
The client would supply the room or building where the food would be
served and the entertainment performed.
Under these circumstances, your charges would not reflect charges for
the admission to an entertainment event pursuant to section 103(1)(f) because
no Aright or privilege to enter into a place,@ in accordance with section (A) of Rule 33, is
conveyed. Accordingly, the tax
consequences of your charges may be considered individually.

The charge for the food catering would be considered a
sale of meals and would be subject to taxation pursuant to Section
103(1)(e). The tax rate you would apply
on your charges for food or meals would consist not only of the sales tax rate,
but also the tourism tax rate (in most jurisdictions) and the resort tax rate
(in a handful of jurisdictions, such as Park City and the Town of Alta). Tables are available from the Tax Commission
that show what taxes are due in each of the specific jurisdictions.

The entertainment provided is a nontaxable service,
and, accordingly, no sales tax is due on this charge. However, if you charge one amount to your client that includes
both the nontaxable entertainment charge and some taxable charge, such as for
food catering, the entire amount charged is taxable. Therefore, the entertainment charge should be stated separately
to ensure that the entire food and entertainment charge is not assessed sales
tax.

Situation 2. As stated earlier, the charge for
entertainment alone would be a nontaxable charge for services.

Situation 3. In this situation, a company is purchasing
the entertainment and the right to use the room from you, then allowing its
employees to enter the room and enjoy the entertainment free of charge. Under these circumstances, your charges to
the company for both the room and the entertainment are tax-free. Utah Admin. Rule R865-19S-33(D) (ARule 33") provides that:

AWhere a person or organization acquires the sole right
to use any place or the right to dispose of all of the admissions to any place
for one or more occasions, the amount paid is not subject to the tax on
admissions. Such a transaction
constitutes a rental of the entire place and if the person or organization in
turn sells admissions, sales tax applies to amounts paid for such admissions.

As the company is acquiring from you the sole right to
use the place (in this case, a room), you will not be considered a seller of
admissions. Accordingly, your charges
are not considered in the aggregate as a taxable admission. Instead, your charges are considered
separately to determine if they are taxable.
Both the rental of a room for a party and the charge for entertainment
under these circumstances are nontaxable transactions. You would not collect sales tax on either
charge in this situation.

Situation 4. This situation would be the same as
discussed in Situation 3 above, except your client, the company, would not be
providing the event to its employees free of charge. Instead, the company would charge its employees to attend the
company event. Section (D) of Rule 33
again provides that your charges to the company do not constitute a taxable
admission. As in Situation 3, the
company is acquiring from you the sole right to use the room. Accordingly, you are not the seller of a
taxable admission. Instead, your
charges for the room and the entertainment are considered separately for
taxation purposes and, as in Situation 3, are nontaxable. However, Section (D) of Rule 33 would
require the company to apply sales tax on the price it charges its employees to
attend the event, if the event is one for which admittance is considered a
taxable admission.

Situation 5. You ask a number of questions concerning
the application of sales tax on the rental of tangible personal property,
specifically balloon slides, balloon walls, and carnival midway-type
games. Pursuant to section 103(1)(k),
subsection (B) of Utah Admin. Rule
R865-19S-32 (ARule 32") imposes a sales tax on the lease or
rental price of tangible personal property when the Alessee has the right to the possession, operation, or
use of the tangible personal property[.]@ However, subsection (D) of Rule 32 sets
forth that when the rental charge includes a person to operate the rented
property, the lessee has not acquired the right to possess, operate, or use the
property for taxation purposes, as follows:

Persons who furnish an operator with the rental
equipment and charge for the use of the equipment and personnel are regarded as
the consumers of the property leased or rented. An example of this type of rental is the furnishing of a crane
and its operating personnel to a building erector. Sales or use tax then applies to the purchase of the equipment by
the lessor rather than to the rental revenue.

Accordingly, you would charge sales tax on all rentals
of balloon slides, balloon walls, and carnival midway-type games, even if you
provide a person to set up and/or take down that equipment. However, if your charges include providing a
person to operate the rented property, your rental charges are nontaxable.

You may rent these properties to a company which then
charges its employees a taxable admission charge to use the rented
properties. However, the company is not
entitled to use the resale exemption to rent the properties tax-free from
you. In this situation, your rental of
tangible personal property without an operator remains a taxable
transaction. As the company=s employees are purchasing an admission to an activity
or event, they would not be considered the ultimate consumers of the equipment
rental. Your client, the company, is
considered the party who Aconsumes@
the taxable rental and, accordingly, is not entitled to rent the property
tax-free using the resale exemption.

Please contact us if you have any other questions.

For the Commission,

Marc B.
Johnson

Commissioner