The Texas sale-for-resale exemption does not apply to fitness equipment purchased by a health club. Examples include cardio machines; arm, abdominal, and leg equipment; weight racks; scales; and so forth.

Generally, a taxpayer qualifies for the sale-for-resale exemption if it purchases tangible personal property for the purpose of reselling it, or for the purpose of transferring it as an integral part of a taxable service. See Tex. Tax Code § 151.006(a)(1) & (2). In a recent case, Fitness International v. Hegar, Fitness International argued that its purchases of fitness equipment qualified for the exemption because it either: (1) rented the equipment to its members in exchange for the membership fee, or (2) transferred the equipment to its members as an integral part of its gym membership, a taxable amusement service.

In rejecting Fitness International’s analysis, the court concluded that Fitness International’s membership agreements could not be reasonably construed as lease or rental agreements and that Fitness International did not transfer legal title to or possession of the equipment to its members, but rather merely provided access to the equipment per Fitness International’s terms. As a result, Fitness International was not entitled to purchase the contested equipment tax-free under the sale-for-resale exemption.

As part of its analysis, the court defined key terms for the sale-for-resale exemption, including “transfer,” “possession,” and “sell,” which will likely be useful in future cases.