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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 Public Accounts
    Capitol Building                        Re:    Whether fraternal and
    Austin, Texas                                  veterans organizations,
                                                   operating clubs under
                                                   the Locker System or
                                                   the Pool System as those
                                                   terms are defined in Article
                                                   666-15(e), Vernon's Texas
                                                   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 furnish-
                                                   ing, serving or distribution
                                                   of alcoholic beverages, set-
                                                   ups, mix, food, soft drinks,
                                                   etc., to their members 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 your recent request for an opinion of this Office,
    you state the following facts and ask the following questions:

                 "Prior to October 1, 1969 the Comptroller
              of Public Accounts required social clubs,
              fraternal and similar organizations operating
              on a membership basis to report and remit the
              sales and use tax upon the gross receipts for
              the furnishing and distribution to its members
              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)


          exempt under former Article 20.04(B)(2) of
          the Limited Sales, Excise and Use Tax Act).
             "Effective October 1, 1969, Article 6 of
          H.B. 4, 2d Called Session, 61st Legislature
          amended Section 15e, Article 1 of the Texas
          Liquor Control Act, as amended (Article 666-15(e),
          Texas Penal Code) by adding thereto Subsection
          6b. The new subsection exempts from the
          Limited Sales, Excise and Use Tax Act the
          preparation and/or serving of alcoholic
          beverages to the members and guests of pri-
          vate clubs licensed as such by the Liquor
          Control Board. A special private club ser-
          vice fee was imposed by 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 in Article
          20.04(B)(2).
             "Sales Tax Ruling No. 95-0.53 was issued
          effective October 1, 1969, to reflect the
          provisions of subsection 6b as it pertains
          to activities of licensed private clubs. It
          is the interpretation of the Comptroller that
          all other clubs and organizations which serve
          or distribute alcoholic beverages, including
          fraternal and veterans organizations, lodges
          and similar organizations, are subject to
          applicable provisions of the Limited Sales,
          Excise and Use Tax Act pertaining to retailers
          of tangible personal property. Consequently,
          such organizations are 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)


                     "Certain organizations have questioned the
                  foregoing interpretation and alleged that with
                  respect to beer and other alcoholic beverages
                  the only responsibility of the unlicensed
                  fraternal or veterans organization is to pay
                  tax on such items at the time of their purchase
                  thereof.
                     'Your official opinion is respectfully
                  requested whether the mentioned clubs and
                  organizations that 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 items mentioned above which are
                  furnished to such members and guests. In the
                  event your answer is in the affirmative, your
                  official opinion is requested whether such
                  organizations may furnish resale certificates
                  in lieu of paying sales tax at time of purchase
                  of alcoholic beverages and other items pur-
                  chased for the purpose of furnishing them to
                  members and guests."
               Though you do not so state, we make the reasonable assump-
        tion in the premises that the operations of the organizations
        Inquired about are in conformity with 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 controlling question 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's Texas 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
        operating private clmccording     to the definitions and terms
        of said Sec. 1 of Art. 666-15(e), but not holding Private Club
        Registration Permits prescribed by 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 alcoholic beverages by a private club to its




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Honorable Robert S. Calvert, Page 4 (M-553)


          members and guests, nor the collection of
          gratuities
              ._     from members and guests shall be
          considered as a sale for consideration and
          shall be completely exempt from the provisions
          of the Limited Sales, Excise and Use Tax Act,
          as amended. In lieu of the tax imposed by 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 alcoholic beverage by such club. Such fee
          shall be Imposed at the time of the delivery
          to the member or guest of the container con-
          taining any of said beverages. The special
          private club service fee shall be added to
          the club's other charges for service of the
          alcoholic beverage and shall be an obligation
          of and collected from the person receiving
          the service. The Board shall have power to
          make such rules and regulations as are neces-
          sary for the collection of this service fee."
       This office has previously held that an act of the 57th
Legislature in 1961 exempting fraternal and veterans organiza-
tions from the application of Art. 666-15(e) as it then existed,
clearly and unambiguously relieved fraternal and veterans organi-
zations from the operation of such law and from any duty or
liability to qualify under same, and the clubs operated by such
organizations were thereby authorized to serve the members' liquor
to them and receive a service charge therefor under Article
666-15(e), through the use of the locker or pool system, without
obtaining a permit, such method not being deemed a sale within
the ambit of the statute. (Opinion No. c-693, May 26, 1966.)
The exemption of fraternal and veterans organizations was amended
but not materially changed by the 61st Legislature in 1969; such
amendment restricting the exemption to fraternal and veterans
organizations any pa& of whose property is exempt, or would be
exempt, from taxation under Article 7150, Revised Civil Statutes
of Texas, 1925, as then or later amended.
       Thus, from this Opinion we find that the major thrust of
our prior holdings in this re ard is that the exempt organizations
so treated in said Article 66t -15(e) are not excluded but are
exempted from the Act; 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 ruling would necessarily




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


        declare that the fraternal and veterans organizations were
        entirely excluded from the rights and privileges afforded
        by the said Article 666-15(e) and not entitled to operate
        a private club, thereby rendering that portion of the law
        unconstitutional because of being unreasonable and arbitrary
        class legislation In violation of the "equal protection of
        laws" provisions of both State and Federal Constitutions.
        Sec. 3, Article I, Constitution of Texas; Fourteenth Amend-
        ment to the Constitution of the United States; 12 Tex.Jur.2d
        457, Constitutional Law, Sec. 110. Also see the other author-
        ities cited in said Opinion No. c-693.
               We find the principles of law stated in said Opinion
        still valid and applicable to the questions now before us.
        Fraternal and veterans organizations being permitted by law
        to operate private clubs In the same manner as Permittees
        under the terms of Art. 666-15(e), it then follows that such
        organizations are entitled to all the benefits and
        bestowed upon Permittees by such Article, including%%&%?
        plete exemption therein contained from the provisions of the
        Limited Sales, Excise and Use Tax Act insofar as the prepara-
        tion and/or serving of alcoholic beverages by a private club
        to its members and guests, and the collection of gratuities
        therefor, is concerned. As to the non-exempt items mentioned
        In your request, the preparation and/or serving of same by
        such clubs operated by 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 such Act 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 foregoing ruling that the
        alcoholic beverages in question can be served or dispensed by
        any of such clubs only under the terms and methods prescribed
        by said Art. 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 its purchase from the dealer. In
        this connection it is pointed out that subsection 6b of Sec. 1,
        of said Art. 666-15(e) expressly prohibits from consideration
        as a sale, the preparation and/or serving of alcoholic beverages
        by su=lubs    to their members and guests, and the collection
        of gratuities therefor. Furthermore, this office has hereto-
        fore held 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 'Pool System" as provided for in Art. 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 beverages purchased for such purposes is that no
resale certificates are authorized. In reference to the non-
exempt 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'raternaland veterans organizations
         operating Private Clubs in accordance with
         the definitions and terms of Sec. 1 of
         Art. 666-15(e), Vernon's Texas Penal Code,
         but not holding Private Club Registration
         Permits prescribed by said Article, are
         within the exemption from the provisions
         of the Limited Sales, Excise and Use Tax
         Act as to the preparation and/or serving
         of alcoholic beverages to their members or
         their guests, and the collection of gra-
         tuities 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 non-
         exempt items so served.




                                       General of 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
              Roland Allen
              MADE F. GRIFFIN
              Staff Legal Assistant

              NOLA WRITE
              First Assistant




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