A company runs a subscription website where college students pay to access professor-posted class content, pay extra to print pages, and pay a copyright surcharge to view certain copyrighted articles. Which of these charges are taxable Texas information services, and how does the company determine Texas vs. out-of-state tax treatment for students located both inside and outside Texas?

Plain-English summary

A company (Company A) ran an internet-based service for college professors and students: professors post class content (office hours, syllabi, reading lists, exam schedules, supplemental materials) for free, students pay a subscription fee ($7.00/semester) for 24-hour access, an optional printing fee ($0.06/page including delivery), and a $1.00 copyright surcharge per article to view certain copyrighted material (which offsets Company A's own ~$0.80/article cost of clearing rights through the Copyright Clearance Center). Company A served students both inside and outside Texas from a server located outside Texas, and asked the Comptroller a series of questions.

Answers, question by question:

1. Student subscription fees are taxable information services. Yes.
2. Printing fees are consideration for the taxable information service. Yes — they're related charges connected to the taxable service.
3. Copyright surcharges are also consideration for the taxable information service. Yes.
4. Are copyright clearance charges themselves taxable, and can they be bought tax-free for resale? A copyright clearance charge NOT collected in connection with a taxable item or service is generally a nontaxable sale of an intangible (the letter's examples: a fee to use a copyrighted photo in a magazine, or a song in a movie/commercial). But if Company A buys information services for resale and its provider bundles a copyright clearance charge into that sale, Company A may issue a resale certificate covering the entire charge.
5. For Texas-located student subscribers, Company A must either collect Texas tax or obtain an exemption certificate asserting multistate benefit of use — and the taxable price gets a 20% reduction under Tax Code § 151.351.
6. For out-of-state student subscribers, Company A does NOT need to obtain exemption certificates — but it should keep documentation (like the shipping address for mailed printed materials) proving the student is actually out of state, as distinct from a Texas-enrolled student who merely has an out-of-state permanent/billing address.
7. Which address controls for determining Texas vs. multistate benefit of use — billing, shipping, or the student's university location? The student's shipping address is generally the most reliable indicator of where the benefit is actually received, especially since a student can be enrolled at a Texas university and never physically attend a Texas classroom (web-based classes). However, if the classes are NOT web-based and the posted content is for a Texas institution, it's reasonable to presume the student receives a Texas benefit regardless of a "permanent address" or web connection address.

What this means for you

EdTech and internet subscription businesses serving multistate customers

Nearly every revenue stream in a content-subscription model like this — the base subscription, printing add-ons, and even a pass-through copyright surcharge — gets swept into taxable "information services" in Texas, with a 20% statutory reduction. Track your customers' actual service-benefit location (shipping address is often the best proxy) rather than relying solely on billing address or the institution's location, especially if any portion of your service is delivered online/web-based.

Companies purchasing content or licensing services for resale that include a bundled copyright clearance fee

If your vendor bundles a copyright clearance charge into a taxable information service you're purchasing for resale, you can cover the whole charge — including the copyright portion — with a resale certificate, rather than trying to separate out the "intangible" copyright piece.

Accountants and tax professionals advising on Texas multistate service sourcing

This letter is a detailed worked example of Texas's "benefit of use" sourcing analysis for information services sold to a mixed in-state/out-of-state customer base, including the practical documentation standard (shipping address over billing address or institutional location) and the special wrinkle introduced by web-based/distance education.

Common questions

Q: Are student subscription fees for an online class-content service taxable in Texas?
A: Yes — they're taxable information services, with a 20% price reduction under Tax Code § 151.351.

Q: Is a separately charged copyright fee taxable?
A: If it's bundled with a taxable information service, yes, as part of the taxable charge. Standing alone and not tied to a taxable item/service, a copyright clearance charge is generally a nontaxable sale of an intangible.

Q: Does a business need an exemption certificate for out-of-state customers?
A: No — for genuinely out-of-state student subscribers, no exemption certificate is needed, but the business should keep documentation (like a shipping address) proving the out-of-state location.

Q: Which address determines whether a customer's benefit-of-use is in Texas — billing, shipping, or school location?
A: Generally the shipping address, since it's the best indicator of where the service is actually used — though a non-web-based service tied to a Texas institution may reasonably be presumed to have a Texas benefit regardless of address.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.351 (20% exemption for information services)
• 34 Tex. Admin. Code Rule 3.342 (referenced regarding multistate benefit-of-use documentation, noted as not fully explicit on this point)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200006412L

Original ruling text

June 21, 2000

Thank you for your recent letter concerning information services sold over the
Internet.

Your client, Company A operates an Internet-based service for college
professors and students. The service allows professors to post customized
content on Company A's web site. The content includes office hours, class
syllabi, reading lists, examination schedules, and supplemental reading
materials. Professors and/or their teaching assistants may post or amend
content as needed. The web site also provides links whereby subscribing
students may exchange e-mail with their professors and/or teaching assistants,
and a message board. Company A provides the above-described service to college
professors free of charge.

Subscriptions. Company A derives its income from student subscriptions.
Currently, each student pays Company A $7.00 per semester. In exchange for the
subscription fee, a student gains 24-hour daily access to the above-described
content.

Printing fees. A subscribing student may purchase a printed hard copy of
certain information posted on the web site. Company A charges subscribing
students a printing fee of $0.06 per page for hard copies, which includes
delivery to the student.

Copyright fees. If a subscribing student wishes to purchase or view copyrighted
material, the student pays a copyright surcharge of $1.00 per article. The
purpose of the surcharge is to offset Company A's cost of purchasing the right
to sell or publish copyrighted material. Company A currently pays
approximately $0.80 per article as a copyright clearance fee, using a service
called the Copyright Clearance Center.

Company A provides the foregoing services to college students located
throughout the United States, both inside and outside Texas. Company A
currently uses a server located outside Texas.

Question 1. Do Company A's student subscription services constitute taxable
information services?

Response. Yes.

Question 2. Do Company A's printing fees constitute consideration for
information services?

Response. Yes. The printing fees are related charges provided in connection
with the taxable information services.

Question 3. Do Company A's copyright fees constitute consideration for
information services?

Response. Yes.

Question 4. Are copyright clearance services subject to sales and use taxes? If
so, may Company A purchase them tax free for resale?

Response. A copyright clearance charge that is not collected in connection
with a taxable item or service would most likely be considered a non-taxable
sale of an intangible. For example: the charge to use a copy-righted photo in
a magazine or the charge to use a song in a movie or commercial. However,
presuming that Company A purchases information services for resale and their
provider collects a copyright clearance charge in connection with the sale,
Company A may issue a resale certificate in lieu of tax on the entire charge.

Question 5. Please state whether, with regard to student subscribers located in
Texas, Company A must either collect tax or obtain an exemption certification
asserting multi-state benefit of use.

Response. Company A must either collect tax or obtain an exemption
certification asserting multi-state benefit of use. You are correct in stating
that the taxable sales price of Company A's services should be reduced by 20%
pursuant to Tax Code Section 151.351.

Question 6. With regard to student subscribers located outside Texas, Rule
3.342 is not explicit. Is Company A excused from collecting Texas sales or use
tax from student subscribers located outside Texas, or will Company A be
required to obtain exemption certifications from such students asserting a
multi-state or non-Texas benefit of use?

Response. Company A does not need to obtain exemption certificates for
services provided to students that are located outside of Texas. Company A
should maintain documentation that the services are provided to students that
are out of state when the service is performed as opposed to students that are
currently enrolled in Texas universities that have out-of-state home or billing
addresses. An example of acceptable documentation would be the shipping
address that the printed information services are mailed to.

Question 7. For purposes of determining Texas or multi-state benefit of use,
which location governs Company A's determination of the applicable rules: the
student's billing address, the student's shipping address, or the address of
the college or university in which the student is enrolled?

Response. In the current situation, the student's shipping address may be more
indicative of where the information is actually being used and where the
service benefit location exists. This is due to the fact that more
universities are looking at web based classes. A student may be enrolled at a
Texas university and never set foot in a classroom in Texas. The student is
the purchaser of the service and it is their benefit that controls and not the
university location.

If the classes are not web based and the information posted is for a Texas
institution, it appears to be a reasonable presumption that the student is
receiving Texas benefit regardless of their "permanent address" or web
connection address. You may wish to provide additional scenarios for our
review.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Kevin Koller
Tax Policy Division