Texas: Appeals Court Holds Aquarium Not Selling Tangible Personal Property

Recently, a Texas appeals court held that a taxpayer that operated an aquarium was not selling tangible personal property and was therefore not entitled to deduct costs of goods sold (COGS) in computing its Texas Margin Tax liability. In general, under Texas law, only entities that own and sell real or tangible personal property can elect to deduct COGS. The definition of “tangible personal property” includes property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner.  The taxpayer argued that the “sensory immersion experience” offered by the Aquarium to its customers in exchange for their payment of admissions and membership fees constituted the sale of “tangible personal property.” Specifically, the taxpayer argued that its customers could “taste and feel the thick humidity and rain in the facility,” “see and smell a wide variety of animals and plants in their native habitats,” “hear the birds and monkeys howling as they roam free,” and “feel the Toucans eating blueberries from their palms.”  As such, the taxpayer asserted that the sensory experience qualified as “personal property that can be seen, weighed, measured felt, or touched or that is perceptible to the senses in any other manner.”

The appeals court disagreed after reviewing dictionary definitions of the terms “personal property” and “experience.” In the court’s view, the Aquarium “experience,” was categorically at odds with the ordinary meaning of “property,” which is something external and capable of ownership and all of its usual incidents. Rather, in the court’s view, the Aquarium was “selling” customers only the permission or license to enter into the setting and experience all that it had to offer. Admission to the Aquarium and the time that a customer spent therein—however “immersive” and “sensory” that setting, time, and resultant experience may be— was simply not “property” in any reasonable and ordinary sense of the word. Accordingly, the court concluded that the taxpayer was not entitled to a franchise tax refund. Please contact Doug Maziur at 713-319-3866 with questions on Dallas World Aquarium Corp.v. Hegar.