Is a stand-alone vehicle trade-in appraisal service sold to car dealerships' customers a taxable information service in Texas?

Plain-English summary

The Texas Comptroller ruled that a stand-alone vehicle trade-in appraisal service — where a car shopper enters their trade-in details on a dealership's website, the taxpayer's staff runs the numbers through appraisal software and industry pricing sources (Manheim, Kelley Blue Book, Black Book, NADA Guides, vAuto), and emails back an appraisal the dealership honors — is a taxable information service. 80% of the charge is taxable; only 20% is exempt.

The Comptroller found the appraisal service fits the "research" and "electronic data retrieval" language in the information-service definition, since it's essentially compiling and furnishing current market data about a specific vehicle. The key fight was whether it instead qualified for the proprietary information exemption, which applies only when the client (here, the dealership) has an enforceable property right preventing the service provider from reselling the information to anyone else. It didn't: the taxpayer's own service agreement let it retain those property rights and only barred the dealership from reselling customer data to third parties — the opposite protection from what the exemption requires. The Comptroller contrasted this with a 2011 decision where marketing leads WERE proprietary and exempt, because that taxpayer's agreement barred the service provider from reselling the leads to another client.

What this means for you

Marketing technology and data-service companies

If you sell research, appraisals, leads, or compiled information to clients, whether you owe sales tax as an information service often turns on a specific contract clause: does YOUR agreement prohibit YOU (the provider) from reselling that same information to another client? If yes, you may qualify for the 100%-exempt proprietary-information carve-out. If your agreement instead just restricts what your client can do with the data (and you keep the rights), you're likely fully in the 80%-taxable information-service bucket, per this ruling.

Automotive dealerships and marketing platform users

If you buy a third-party appraisal, lead-generation, or research service for your customers, expect the vendor to charge Texas sales tax on 80% of the fee unless their contract with you specifically grants you exclusive/proprietary rights to the information gathered on your behalf.

Accountants and tax professionals

This ruling is a direct, fact-specific contrast to Comptroller Decision No. 104,366 (2011) and STAR 9109L1130D05 (1991) — both cited here as the standard for what makes information "proprietary." Review the actual resale-restriction clause in a client's service agreement before assuming a data/research offering is exempt; the label "proprietary" in marketing materials doesn't matter, only the enforceable contract right does.

Common questions

Q: Is all research or data-compilation work taxed in Texas?
A: If it fits the "furnishing... current information" or "electronic data retrieval or research" definition, it's a taxable information service (80% taxable) UNLESS it qualifies for the proprietary-information exemption.

Q: What makes an information service "proprietary" and exempt?
A: The client must have an enforceable property right preventing the service provider from reselling the same information to another party — not just a restriction on what the client itself can do with it.

Q: Does this ruling cover the taxpayer's full marketing Platform, or just this one feature?
A: Only the stand-alone appraisal service. The ruling explicitly does not address services bundled into the taxpayer's broader Platform.

Q: Can other appraisal or research service providers rely on this ruling?
A: No. It binds the Comptroller only as to the taxpayer and facts in this specific request and cannot be relied on by any other taxpayer — but the proprietary-information contract test it applies is a reusable framework.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (sales tax imposed)
• Tex. Tax Code § 151.010 (taxable item)
• Tex. Tax Code § 151.0101(a)(10) (taxable services)
• Tex. Tax Code § 151.0038 (information service)
• Tex. Tax Code § 151.351 (20% exemption)
• 34 Tex. Admin. Code Rule 3.342(a)(2) (Information Services)
• 34 Tex. Admin. Code Rule 3.342(a)(5)(A) (proprietary information exclusion)
• Comptroller Decision No. 104,366 (2011) (distinguished)
• STAR Accession No. 9109L1130D05 (1991)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201902026L

Original ruling text

February 22, 2019

RE: Private Letter Ruling No. 20180710123001

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated July 2, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of a stand-alone vehicle appraisal service offered to motor vehicle dealerships’ customers.

Facts Presented

** (Taxpayer), is a Florida limited liability company based in CITY, Florida. Taxpayer is a marketing technology company that provides marketing software to the automotive industry.

The relevant facts are based on the following documents provided for review by the Taxpayer: COMPANY Service Order 2018 v.4, and Schedule A to Master Service Agreement General Terms and Conditions (Agreement). Taxpayer provided additional information and made various statements via email on August 1, 2018 as noted herein.

One of Taxpayer’s marketing tools is the COMPANY platform (Platform), which is a tool that converts customer information and transaction data into customized marketing campaigns and multimedia communications directed at a motor vehicle dealership’s (Dealership’s) prospective customers. The Platform has many features customers can access, including a “*” Service (Service) feature that Dealerships can use to streamline the vehicle appraisal process. It helps Dealerships convert shoppers into buyers by providing transparent and up-front appraisal information on the Dealership’s website. Taxpayer provides the Service through the Platform or as a stand-alone service.

Car shoppers (Customers) access the Service from the Dealership’s website, where Taxpayer has added an input ribbon that allows the Customer to enter their specific trade- in vehicle information for appraisal. The vehicle information is transmitted to the Service appraisal desk, which is staffed by Taxpayer’s employees. The appraisal desk employees run the trade-in vehicle information through their appraisal software then email the resulting motor vehicle appraisal to the Customer. The Customer can take the motor vehicle appraisal to the Dealership, who will honor the appraisal amount. If the Dealership’s employees determine that the trade-in vehicle has additional items that were not disclosed by the Customer, they can log into the Service, input the missing information, and request a “re-bid.” Taxpayer’s appraisal desk employees process the new information send a new appraisal to the Customer.

If the Dealership accepts a Customer’s trade-in vehicle but decides they do not want the vehicle for their inventory, Taxpayer will “guarantee the trade” or buy back the vehicle from the dealer within a set period of time after the close of the sale and trade-in transaction with the Customer.

There are two additional situations where a Dealership would use the Service to appraise a trade-in vehicle. In the first situation, the Dealership would use the Service when a Customer is at the Dealership and requests a trade-in appraisal on their vehicle. Dealership employees input the trade-in vehicle information into the Service and the Taxpayer sends the resulting appraisal directly to the Dealership instead of to the Customer. In the second situation, the Dealership uses the appraisal Service to get trade- in quotes for vehicles in their existing inventory that they own and keep on their lot.

The Agreement between Taxpayer and Dealerships states that the dealer will only use the Customer and vehicle information obtained for the sole purpose of communicating with Customers about the purchase of their vehicle, and the Dealership’s potential sale of a vehicle to the Customer. The Dealership will not sell or transfer any Customer information from the Service to a third party for marketing or any other purpose.

Information provided in supplemental email correspondence indicates Taxpayer obtains the data used to calculate a vehicle appraisal by randomly utilizing sources including Manheim Market Report, Kelly Blue Book, Black Book, National Automobile Dealer Association Guides and vAuto. Taxpayer also indicates they are requesting a Private Letter Ruling for only the stand-alone appraisal Service, not the Service provided to Dealerships through the Platform.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Is Taxpayer’s stand-alone motor vehicle appraisal service provided to a Dealership’s Customer a taxable service?

Ruling: Taxpayer’s motor vehicle appraisal service provided to a Dealership’s Customer is a taxable information service.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). The term “taxable services” includes only those services listed in Section 151.0101 (“Taxable Services”). Information services are one of the enumerated taxable services. Section 151.0101(a)(10).

The term “information service” means “furnishing general or specialized news or other current information” Section 151.0038 (“Information Service”). Rule 3.342(a)(2) further provides that information services include furnishing general or specialized news or other current information “including financial information, by printed, mimeographed, electronic, or electrical transmission, or by utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or which may be devised, and electronic data retrieval or research….”

Under Rule 3.342(a)(5)(A), the sale of a proprietary information service is not subject to tax. To qualify as a proprietary information service, the information collected: (1) must be gathered or compiled on behalf of a particular client; (2) must be of a proprietary nature to that client; and (3) may not be sold to others by the person who gathered or compiled the information. In order for information to proprietary in nature, the client must have an enforceable property right in the information such that the client could prevent the service provider from selling it to another party. Comptroller’s Decision No. 104,366 (2011).

Taxpayer’s collection of the trade-in vehicle’s information and the subsequent analysis by Taxpayer’s employees to furnish an appraisal of the vehicle’s current value is the kind of research contemplated in Rule 3.342(a)(2). Therefore, Taxpayer’s Service is an information service.

Taxpayer’s appraisal Service is not a proprietary information service under Rule 3.342(a)(5)(A). The Agreement provided by Taxpayer does not contain a provision that gives Taxpayer’s Dealership client an enforceable property right to the information.

Instead, the Agreement allows Taxpayer to retain the enforceable property rights in the information collected; the Agreement only prohibits the Dealership from selling the information to third parties. The terms of Taxpayer’s Agreement are distinguishable from those considered in Comptroller’s Decision No. 104,366 (2011). There, the Comptroller determined that the marketing leads at issue were nontaxable proprietary information services due in part to a clause in the taxpayer’s service agreements with its clients that stated the service provider could not resell the leads to another client. See also STAR Accession No. 9109L1130D05 (1991) (seller may not sell the information to another customer, even in another form or report).

Twenty percent of the charge for a taxable information service is exempt. See Section 151.351. Accordingly, Taxpayer must collect and remit tax on 80 percent of its charge for the Taxpayer’s Service.

This ruling relates only to the stand-alone appraisal service. This ruling does not make a determination related to services provided through Taxpayer’s Platform.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20180710123001.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.