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### THE AITORNEY GENERAL
OF%-EXAS

AEHTIN. TEXAS 78711

January 14, 1970

Honorable Robert S. Calvert Opinion No. M- 553 Comptroller of PublicAccounts Capitol Building Re: Whether fraternaland Austin, Texas veterans organizations, operating clubs under the Locker System or the Pool System as those terms are defined inArticle 666-15(e), Vernon'sTexas Penal Code, but such clubs not licensed as Private Clubs, are required to obtain Sales Tax Permits and report and remit the tax on the gross receipts received for the furnishing, serving or distribution of alcoholic beverages, setups, mix, food, softdrinks, etc., to theirmembers and their guests; and, if so, may they furnish resale certificates at time of the purchase of such commodities in lieu of Dear Mr. Calvert: paying sales tax thereon?

In you state your recent request for an opinion of this Office,

the followingfacts and ask the following questions:

"Priorto October 1, 

### 1969the Comptroller of PublicAccounts required social clubs, fraternaland similar organizations operating
on a membershipbasis to report and remit the sales and use tax upon the gross receipts for the furnishingand distribution to itsmembers and guests of any tangible personal property, including set-ups,mixes, ice,meals or other food and drinks (other than alcoholic beverages

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Honorable Robert S. Calvert, Page 2 (M-553) 3

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exempt under formerArticle 20.04(B)(2) of the Limited Sales, Excise and Use Tax Act).

"EffectiveOctober 1, 1969,Article 6 of H.B. 4, 2d Called Session, 61st Legislature amended Section 15e,Article 1 of the Texas Liquor ControlAct, as amended (Article666-15(e), Texas Penal Code)by adding thereto Subsection 6b. The new subsectionexempts from the Limited Sales, Excise and Use TaxAct the preparation and/or serving of alcoholic beverages to themembers and guests of private clubs licensedas suchby the Liquor Control Board. A specialprivate club service feewas imposedby the amendment in lieu of the sales tax in the amount of five cents for each serving of an alcoholic beverage by
a private club. H.B. 4 eliminated the general exemption for alcoholic beverages from the sales tax formerly contained inArticle 20.04(B)(2).

"SalesTax Ruling No. 95-0.53was issued effectiveOctober 1, 1969, to reflect the provisions of subsection 6b as itpertains to activities of licensed private clubs. It is the interpretationof the Comptroller that all other clubs and organizationswhich serve or distributealcoholicbeverages, including fraternaland veterans organizations, lodges and similarorganizations,are subject to applicableprovisions of the Limited Sales, Excise and UseTax Act pertaining to retailers of tangiblepersonalproperty. Consequently, such organizationsare required to collect and remit the tax on the total charges or gratuities collected for each drink,beverage, set-up,mix, meal or other nonexempt food served, distributed
or otherwise furnished to members and guests. As
a retailer the organization is required to hold
a Sales Tax Permit and is entitled to issue resale certificates in lieu of paying sales tax when purchasing such items from package stores,beer distributors,and other suppliers.

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Honorable Robert S. Calved, Page 3 (M- 553)

"Certainorganizationshave questioned the foregoing interpretationand alleged that with respect to beer and other alcoholic beverages the only responsibilityof the unlicensed fraternal or veterans organization is to pay tax on such items at the time of their purchase thereof.

'Yourofficial opinion is respectfully requestedwhether the mentioned clubs and organizationsthat are not licensed by the Liquor Control Board as private clubs are required to obtain Sales Tax Permits and report and remit the tax on the gross receipts received for the furnishing, serving or distribution of any taxable items including drinks, food and other nonexempt itemsmentioned above which are furnished to suchmembers and guests. In the event your answer is in the affirmative, your official opinion is requestedwhether such organizationsmay furnish resale certificates in lieu of paying sales tax at time of purchase of alcoholicbeverages and other items purchased for the purpose of furnishing them to members and guests."
Though you do not so state,we make the reasonableassumption in the premises that the operations of the organizations Inquired about are in conformitywith one of the systems defined In Section 1, Article 666-15(e),Vernon's Texas Penal Code, i.e.
a Locker System or Pool System.

The controllingquestion evolving from your request seems to'be whether the exem tlon from the provisions of the Limited Sales, Excise and uEiTkT ct added to Section 1 of Article 666-15(e), Vernon'sTexas Penal Code by the 6lst Legislature in 1969, and numbered Subsection 6b, which became effective October 1, 1969, extends in favor of fraternal or veterans organizations operatingprivate clmccording to the definitions and terms of said Sec. 1 ofArt. 666-15(e),but not holding Private Club Registration Permits prescribedby said Sec. 1 of Art. 666-15(e). Subsection 6b of Sec. 1,Art. 666-15(e) appears as follows:

"6b. Neither the preparation and/or serving of alcoholicbeverages by a private club to its

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members and guests, nor gratuities frommembers

._ the collection of and guests shallbe considered as a sale for considerationand shallbe completely exempt from the provisions of the Limited Sales, Excise and Use TaxAct,
as amended. In lieu of the tax imposedby the Limited Sales, Excise and Use Tax Act, as amended, there is hereby imposed a special private club service fee in the amount of five cents ($0.05) for each individual serving of
an alcoholicbeverage by such club. Such fee shallbe Imposed at the time of the delivery to themember or guest of the container containingany of said beverages. The special private club service fee shallbe added to the club's other charges for service of the alcoholicbeverage and shallbe an obligation of and collected from theperson receiving the service. The Board shall have power to make such rules and regulationsas are necessary for the collection of this service fee."

This officehas previously held that an act of the 57th Legislature in 1961 exempting fraternal and veterans organizations from the application of Art. 666-15(e) as it then existed, clearly and unambiguously relieved fraternal and veterans organizations from the operation of such law and from any duty or liability to qualifyunder same, and the clubs operatedby such organizations were thereby authorized to serve themembers' liquor to them and receivea service charge therefor underArticle 666-15(e), through the use of the locker or pool system,without obtaining a permit, suchmethod not being deemed a salewithin the ambit of the statute. (OpinionNo. c-693,May 26, 1966.) The exemption of fraternaland veterans organizationswas amended but not materially changed by the 61st Legislature in 1969; such amendment restrictingthe exemption to fraternaland veterans organizations any pa& of whose property is exempt, or would be exempt, from taxationunder Article 7150, Revised Civil Statutes of Texas, 1925, as then or later amended.

Thus, from this Opinion we find that themajor thrust of
our prior holdings in this re ard is that the exempt organizations
so treated in saidArticle 66t-15(e)are not excludedbut are exempted from theAct; In other words, as a favored class they
are permitted to participate in the operations allowed under said law without fee or permit; that any other rulingwould necessarily

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Honorable Robert S. Calvert, Page 5 (M-553)

declare that the fraternal and veterans organizationswere entirely excluded from the rights and privileges afforded by the saidArticle 666-15(e) and not entitledto operate
a private club, thereby rendering that portion of the law unconstitutionalbecause of being unreasonableand arbitrary class legislation In violation of the "equalprotection of laws"provisions of both State and Federal Constitutions. Sec. 3,Article I, Constitution of Texas; FourteenthAmendment to the Constitutionof the United States; 12 Tex.Jur.2d 457, ConstitutionalLaw, Sec. 110. Also see the other authorities cited in said Opinion No. c-693.

We find the principles of law stated in said Opinion stillvalid and applicable to the questionsnow before us. Fraternal and veterans organizationsbeing permitted by law to operateprivate clubs In the samemanner as Permittees under the terms ofArt. 666-15(e), it then follows that such organizationsare entitled to all the benefits and bestowed upon Permitteesby suchArticle, including%%&%? plete exemption therein contained from the provisions of the Limited Sales, Excise and Use Tax Act insofaras the preparation and/or serving of alcoholic beverages by a private club to itsmembers and guests, and the collectionof gratuities therefor, is concerned. As to the non-exempt itemsmentioned In your request, the preparation and/or servingof sameby such clubs operatedby fraternal and veterans organizations is subject to the provisions of the Limited Sales, Excise and Use Tax Act, and as to such items the clubs are Retailers under suchAct and required to obtain sales tax permits and remit the tax on the total charges or gratuities received therefor.

In reference to the question posed by the last sentence of your request, in view of our foregoingruling that the alcoholic beverages in question canbe served or dispensedby any of such clubs only under the terms and methods prescribed by saidArt. 666-15(e), it is apparent that the final sale of the liquor In question for which any sales tax would accrue would occur at the time of itspurchase from the dealer. In this connection it is pointed out that subsection 6b of Sec. 1, of saidArt. 666-15(e) expressly prohibits from consideration

as a sale, thepreparation and/or servingof alcoholic beverages by su=lubs to their members and guests, and the collection of gratuities therefor. Furthermore, this office has heretoforeheld in said Opinion No. c-693 that the use of the "Locker

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Honorable Robert S. Calvert, Page 6 (M-553)

System" or 'PoolSystem" as provided for inArt. 666-15(e), Vernon's Penal Code, does not constitute a sale. Therefore,
our answer to that part of such question pemning to the alcoholic beveragespurchased for such purposes is that no resale certificatesare authorized. In reference to the nonexempt items also Inquired about, our answer is that the laws authorizing retail certificates in lieu of the tax upon the purchase of non-exempt items for resale are available to such clubs as they are to any Retailer under the Limited Sales, Excise and Use Tax Act.

SUMMARY

r'raternal

and veterans organizations operating Private Clubs in accordancewith the definitionsand terms of Sec. 1 of Art. 666-15(e), Vernon's Texas Penal Code, but not holding Private Club Registration Permitsprescribed by saidArticle, are within the exemption from the provisions of the Limited Sales, Excise and Use Tax Act as to the preparation and/or serving of alcoholicbeverages to theirmembers or their guests, and the collection of gratuities for services. As to set-ups,mix, food, soft drinks and other non-exempt ccmmodities so served, such organizations
are amenable to said Limited Sales, Excise and Use Tax Act and obligated to comply therewith. No resale certificates in lieu of sales tax are authorized on behalf of purchaser of the liquor in question from the dealer. Resale certificates are authorized for the purchase of the nonexempt items so served.

Generalof Texas
Prepared by R. L. Lattimore Assistant Attorney General

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Honorable Robert S. CalVert, Page 7 (M-553)

APPROVED: OPINION COMMITTEE

Kerns Taylor, Chairman Alfred Walker, Co-Chairman Gordon Cass Jay Floyd Jack,Sparks RolandAllen

MADE F. GRIFFIN Staff LegalAssistant

NOLA WRITE FirstAssistant

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