Texas Rules That Tee Time Reservation App Is a Taxable Data Processing Service
A recent Texas decision ruled that the taxpayer’s tee time reservation app constituted taxable data processing services and that sales was tax due on the barter transaction with its golf course customers, highlighting the sales tax complications that can arise when a third party technology gets involved in transactions that were traditionally between a buyer and seller.
By Tina M. Chunn, SALT Senior Manager
As technology continues to evolve and more applications are being written to assist with the purchase of products/services, businesses need to consider the sales/use tax treatment of transactions involving these applications. On Aug. 21, 2019, a Texas Administrative Law Judge (“ALJ”) issued a decision addressing the sales and use tax treatment of certain transactions involving a golf course tee time reservation application.
The taxpayer provides a service via a mobile application and website that publicizes golf course information and allows users to reserve tee times. The taxpayer does not own any of these golf courses; instead, it makes money by using technology to bring golfers and golf courses together. It contracts with golf courses that want to be part of the network to provide various marketing services, website development and hosting, computer software, and any necessary hardware. The golf course provides the taxpayer with access to the course computing systems and tee times. As payment for these services, the golf course provides the taxpayer with certain tee times that are allowed to be sold to golfers as “inventory” owned by the taxpayer (a barter transition between the golf course and the taxpayer). The taxpayer did not collect sales tax on this barter transaction.
A golfer can make a tee time reservation via taxpayer’s website or mobile application. If the tee time reserved is not one that is in the taxpayer’s inventory, the taxpayer will only collect a reservation fee and the golfer will pay the greens fees directly to the course operator when they arrive at the course. However, if a tee time in the taxpayer’s inventory is selected, the golfer will pay the greens fee and the reservation fee to the taxpayer (with no payment made to the golf course). The taxpayer collected sales tax on the green fees only, since greens fees are subject to sales tax in Texas as a taxable amusement service.
An auditor assessed sales tax against the taxpayer on the reservation fees charged for tee times that were in the taxpayer’s inventory as well as on the value of the tee times transferred by the golf course to the taxpayer. The ALJ upheld the assessment. Regarding the reservation fees charged in connection with tee times that were in the taxpayer’s inventory, the ALJ explained that Texas sales tax rules include in the sales price of an amusement service any convenience fees, handling charges, service charges, and other amounts over and above the cost of admission (i.e., greens fees).
With respect to the “inventory of tee times” transferred to the taxpayer by the golf course, the ALJ ruled that this was the consideration received by the taxpayer from the golf course in exchange for provide the golf course with taxable data processing services (i.e., the online reservation service, web hosting, etc.). The taxpayer argued that the services are primarily nontaxable advertising services as 90% of the golfers that use the website or mobile application do not make a reservation. Upon review of this issue, the ALJ agreed with the state that nearly all of the taxpayer’s services would be categorized as computerized data processing (the fact that many golfers did not make a reservation was not deteminative). Further, as the barter transaction is a single charge for the various products and services provided by the taxpayer including taxable and nontaxable activities, the charge is presumed to be taxable, and the taxpayer was unable to provide sufficient evidence to identify the taxable vs. nontaxable portion of the charge.
As this case highlights, the growth in these types of apps/services add complication to the basic transaction because there is now a third party involved that may be charging fees to the seller and/or purchaser. These transactions may be structured in a variety of ways, each with its own sales and use tax implications. Aprio’s SALT Team is experienced with these types of transactions and can assist in the review of your situation to determine any potential sales/use tax requirements so that you remain in compliance with your tax obligations. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter
This article was featured in the October 2019 SALT Newsletter.
 Texas Comptroller’s Decision No. 115,430, 08/21/19.
 34 Texas Admin Code Sec. 3.298(a)(1)(D)(vi).
 34 Texas Admin Code Sec. 3.298(a)(5).
 34 Texas Admin Code Sec. 3.330(d)(2).
 34 Texas Admin Code Sec. 3.330(d)(2).
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