WILL   WILSON

                                December 16, 1959


   Honorable Robert 8. Calvert     Opinion No. ~~-762
   Comptroller of Public A,coountr
   Capitol Station                 Re: Whether exempt sponsor
   Austin 11, Texas                     of entertainment is
                                        subject to Admission
                                        Tax Liability under Art.
                                        7047a-19, V.C.S., under
                                        a dual consideration
   Dear Mr. Calvert:                    contract.

                We quote from your opinion request aa follows:

         “Opinion WW-15 issued In answer to my question
         regarding sponsorship, or the production of,
         means of entertainment where the contract calla
         for the payment for the services of the enter-
         talners

                I’1 . By Outright Purchase, and the funds
                      applied to e,xempt oauses.’

                ” 2. Where the services of the entertainers
                     was pald.for based on a percentage of
                     the proceeds derived from the sale of
                     tickets, with the proceeds being applied
                     to exempt causes - bearing in mind that
                     the agency entering into contract, was
                     due exempt c,onslderation under the con-
                     dition that no part of the proceeds could
                     be US8d for other than exempt caus8s.

         “There now exists the question 1nVOlVing such
         exsnpt produC8rs or aponsora where the COntraCt
         18 of dual consideration in that

                “Provlalon 1 - Calls for the obligation of
                               th8 producer to pay a epecl-
                               fled amount If the proceed8
                               from the sale of ticket8
                               reaches a Speciried total -       "

                “Provision 2 - Calls for the obligation to
                               be baaed on a specified per-,
                                                                        I




Hon. Robert   S. Calvert,   Page 2             (Opinion   No. ~~-762)


                            centage, if the gross amount
                            set out under Provision   1 is
                            not reached, with the us8 of
                            the funds limited to exempt
                            causes, and a settlement is
                            made using Provision   1 as th8
                            basis.
     “Please let me have your opinion as to whether
     such a contract provides for exemption from th8
     admission tax.”
          Article 7047a-19,       V.A,C,S,,   contains the following
exemption provision:
     It. I . no tax shall be levied under this Act on any
     admission collected       for dances, moving pictures,
     operaa, plays and musical entertainment,            all the
     proceed6 of which inure exclusively           to thnezit
       f St t    rel$gious,      educational,   or charitable
     kstik~ions        societies,    or organizations,      if no
     part of the net earnin s thereof lnurss to the
     benefit, of any
                   ---T-G-
                        pr va .e stockholder      or individual
     * . .     (Emphasis added, )
In,order to answer your questioh,   It is neceseary that the
term “all the proceeds” be defined.    The U. S. Code Con-
 ressional   and Administrative News, Federal Tax Regulations
7 1956), Section 101.15, Page 1973 et seq=, construes the
corresponding   portion of the Federal Admission Tax exemption
provision   as follows i
     “The term ‘all the prooeeds! means all the net
     proceeds of t.he regular admission charges or
     excess charges, as the case, may be after payment
            .   1




                    Hon. Robert S. Calvert, Page 3             (Opinion No. WW-762)



                         reasonable sum and not more than    would ordinarily
                         be received on a flat rate basis    for the same or
                         similar talents or servloes, and    the contract
                         actually operates to the benefit    of the exempt
                         or~anlzation."

                             No court of record In this Stat8 has oonstrued the
                    exemption provision In Article 7047a-19; thereiore, defer-
                    ence must be given the Federal construction.   See Attorney
                    General's Opinion No. WW-593 (April 14, 1959). In accord-
                    ance with such construction, you are advised that before an
                    exemption may be accorded to an exempt organization apon-
                    Boring or lvlng a performance on which admission taxes
                    accrue, (17 all 8Xp8nR88 aid by the organization must be
                    actually Incurred, 'and (2P the amount of each expense must
                    bear a reasonable relation to the service rendered. Other-
                    wise, all proceeqe cannot be deemed to inure exclusively to
                    the exempt organization.   This Is true even though the par-
                    ticular talent or SerViOe iB compensated by a flat fee.
                    Whether certain expenses are reasonable must be determined
                    on the basis of all the facts involved.

                                 Expanses may be paid on the basis of a percentage
                    of tha net or rose prooeede.       In all such.caaes it must
                    appear that (1 the maximum amount to be received Is a r8a-
                    sonable sum and not more     than would3rnnarliy    be received
                    on a flat-rat8 basis for the same or similar talent or ser-
                    ViC8,     and (2) the Contract actually Operates t0 the benefit
                    of the exempt organlz&tlon.
.:
                          ..:
     .,‘.                        The party ilalmlng a tax exemptlon'muat clearly




                    ar8 in the alternative, it must be shown that both methods
                    oonform to the requirements aet,,forth    above. Whether or not
                    "all the proceeds" Inure to an exempt organization      under the *
                    oontraot    her8 Involved 18 a iact queution whioh mu& be
                    dbcldsd    by your department according to the roregoing rulss.
                    Exemptions from taxation are to be strictly construed; all
                    doubts as to whether a party is entitled to an exemption
                    must b8 resolved against the exemption and in favor of tax-
                    ation'. Markham Hospital v. City of Longvlew, 191 S.W.2d 695
                    (Tex.Clv.App. 1943, error rexUS cl)* Clty of' &  ongvlew v.
                    Markham-McKee Memorial Hospital:     152 S.W.         (T8X. COm.
                    A       1941    inl    dtd)    . Santa Rosa Infirmary, et al. v.
                    C%i of &n"kto$o~        &eS.&.    92b (Tex.Com.App. l$P+, opin-
                    Ion adopted).
                                                                                          .
     Hbn. Robert S. Calved',   Page 4           (Opinions ho a WW-‘762)



               Attorney General’s Opinion N,o. WW-15 (February 4,
     1957) held that an exempt orgaiaizatlon whlbh epllt, admiselone
     on a percentage basis with the entertalnniiintwaB not entitled
     to an exemption. This result was based upon a construction
     of “all the proceeds” as meaning that no.‘Bxpense could b$
     paid on the basis of a percentage of admlasions.     The opinion
     points out that the portion of Article 7047a-19 with which we
     are concerned uses the term “all the proceeds”, while the
     exemption applying to public fairs and exhibitions of live
     hook ueee the term "all the net proceeds.”     Thla reasoning
     10 not Bound. The Federal coiii%?uction, quoted above, is ‘to
     the effect that “all the proceeds” means net proceeds.     In
     addition to thle, Article 7047a-19 provldrthat      an exemption
     will be accorded where “al’1~the proceeds” Inure to the States,
     etch., “if no part of the ‘net earnings thereof inures  to the
     benefit of any private stockholder or lndlvldual.”     Therefore,
     WW-15 is overruled in 80 far as it implies that an exemption
     cannot be granted where an exempt organization pays an ex-
     pense on a percentage basis.

              Attorney Qeneralfe Opinion No. WW-322 held that the
     State admlealon tax did not accrue on admissions charged to
     attend the Royal Ballet even thogh the, local manager of the
     show was to receive thirty per cent (30s) of the net receipts.
     Opinion No. WW-15 was reconciled on the basis that the-lan-
     #uage stressing the slgnifloance of the use’ of the phrase
      all the proceeds” was not neceesary to a determination of
     the question Involved. The opinion Implies that a dlstinc-
     tion exists in aituatlons where the exempt organization pro-
     vides the entertainment; and where the exempt organization
     sponsors or purchases the entertainment.   No v,alld basis
                                     Opinion NO. ~~-322 ia clarl-
:,
4    exlsts for such a distinction.
     fied to thls extent.
,
                               SUMMARY

                 In order to qualify for an exemption
            under Article 7047a-19 ‘all expense8 paid by,
            the exempt organization must be actually
            Incurred and-:jnuetbear ,a rkaeonable rela-
            tion to the service. re.t;\&red.; if such~ex- ‘:
            penees are In excess o@what is reasonable
            under the circumetanaqs; all the proceeds
            cannot be deemed to Inure exclusively to ,,
            the benefit of the exempt organization.
            This la true even though the service or en-
            tertainment 1s compensated by a.flat fee.          .
            Where the amount to be received by a non-
-   .




        Hon.   Robert    5.   Calvert,   Page   5             (Opinion      NO. ~~-762)



                  exempt person or organization Is baBed on a
                  peroentage      of the net or gross proceeds,
                  the organization        shall, before eXemptIon may
                  be allowed,      eetabliah     (1) that the maximum
                  amount to be received on the percentage
                  basis ie a reasonable sum and not more than
                  would ordinarily be received on a flat-rate
                  basis    for the same or similar       talent   or
                  servlcee, and (2) the contract          actually
                  operates to the benefit of the exempt organ-
                  lzatlon.     Where    an alternative    method of
                  payment la provided,         it must be shown that
                  both alternatives        conform to the rules      set
                  forth    above.    Whether or not these require-
                  ments are met Is a fact question           to be de-
                  termined    by your department.        The burden is
                  on tha ‘one claiming       exemption to Mow that
                  he is entitled       thereto.     All doubts murt be
                  resolved    againat     the exemption and in favor
                  of taxation.

                                                    Yours   very   truly,

                                                    wILLwILW#
                                                    Attorney    General




        JNP: bet

        APPROVED:

        OPINION COMMITTEE:
        W. V. Qeppert, Chairman

        Milton Richardson:’
        Charles D. Cablness
        Richaed    0.   Jones

        REVIEWED FOR THE ATTORNEY GENERAL:

        By:    Leonard Passmore
