FACTS:

The University is an entity that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. The University has entered into a license agreement with a venue (the “Venue”) to use the Venue for games of the University’s basketball teams (the “Agreement”).

Under the Agreement, the University at its own cost and expense is responsible for presenting the basketball games, maintaining and paying for worker’s compensation insurance, paying any taxes on athletes or entertainers and the municipality’s fee on admissions charges, and conducting the advertising and publicity campaign for the games. Tickets to the games are sold through the Venue’s ticketing sales agency.  Box office receipts are held by the Venue and are applied first to sums of money due it from the University.   The Agreement provides that the Venue will retain from the box office settlement the rent and any additional charges described in the Agreement. If the funds of the box office settlement are insufficient to cover the amounts due the Venue, the University must pay the deficiency to the Venue. 

While the University would be entitled under the Agreement to receive all of the proceeds from the games, net of the payments due the Venue, in actuality the games do not have enough attendance to generate sufficient income to cover the amount needed to pay the rent and other expenses.

ISSUES:

Whether admissions to the University’s basketball games held at the Venue are exempt from the admissions tax under Conn. Gen. Stat. § 12-541(a)(3).

RULING:

Admissions to the University’s basketball games held at the Venue are exempt from the admissions tax under Conn. Gen. Stat. § 12-541(a)(3).

DISCUSSION:

Admissions tax is imposed on admission charges to any place of amusement, entertainment or recreation, except that there is an exemption for admissions to an event if all of the proceeds from the event inure exclusively to an entity which is exempt from federal income tax under the Internal Revenue Code, provided such entity actively engages in and assumes the financial risk associated with the presentation of such event. Conn. Gen. Stat. § 12-541(a)(3).   The admissions charges as described in the Agreement between the University and the Venue qualify for this exemption. The University is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, and it clearly both actively engages in presenting the games and assumes the financial risk because the University must present the events at its sole cost and expense.  The proceeds inure to the University under the Agreement, even though it has not realized a profit due to insufficient attendance to raise the proceeds beyond the amount of the expenses it incurs under the Agreement. 

LEGAL DIVISION

September 5, 2013