After an administrative hearing, a Texas Administrative Law Judge (ALJ) ruled that golf balls purchased by a golf course for use at the golf course’s driving range and putting green did not qualify for a resale exemption. In deciding this case, the Comptroller looked to Texas law, which limits the resale exemption to items purchased by taxpayers and then transferred to customers as part of a taxable service where the control of the item purchased is transferred to the customer.
The taxpayer/ petitioner in the case operated a public golf course, driving range, practice area, restaurant, and pro shop in Texas. During the course of an audit, it was found that though the taxpayer correctly remitted tax on most revenue streams, they did not pay sales and use tax on range balls which were used by end customers and instead claimed a resale exemption. The balls were clearly distinguishable from the resale inventory in the pro shop, and customers used them on the driving range but did not retrieve, return, or reuse them. Instead, the taxpayer would retrieve the balls, then wash and restock them for other customers to use. Both the taxpayer and the auditor agreed that the customers did not have off site physical possession of, a duty to care for, or continued possession of the golf balls in question. For this reason, the auditor assessed tax on the balls. The taxpayer argued since they were providing the balls as a critical piece of the amusement services they were assessing tax on, the balls should be exempt under the resale exemption, and that no transfer of possession was needed because the service they were providing is an amusement service, which is also taxable in Texas. However, Texas Tax Code specifically requires “Tangible personal property used to perform a taxable service is not considered resold unless the care, custody, and control of the tangible personal property is transferred to the purchaser of the service.” (Tex. Tax Code § 151.302(b); 34 Tex. Admin. Code § 3.285(b)(6)). In this case, that transfer never occurred, and the ALJ ruling found that the tax had been correctly assessed—no resale exemption could apply.
This decision highlights taxpayers’ responsibility to ensure they are defining and interpreting tax code the same way as the auditors or Departments of Revenue. Though this taxpayer was providing a service which was taxed, and correctly taxing customers, they disregarded that the tax code clearly set out an exact requirement. Though the taxpayer in this case argued that charging tax on the golf balls when they were purchased and also for the use of them created a double tax, the ALJ disagreed—the golf balls were taxed as tangible personal property when purchased, and the amusement from customers using them was taxed. The ALJ did note that the taxpayer’s concerns may be valid, but a contested hearing was not the place to address those issues, which also highlights that though taxpayers may be entitled to relief, they must seek it though the correct channels, rather than relying on their own interpretations and/ or workarounds. (Decision, Hearing No. 119,188, Texas Comptroller of Public Accounts, Signed August 12, 2024, by Moore, Trevor, Texas State Office of Administrative Hearings Presiding Administrative Law Judge)