Which of a restaurant mobile-ordering platform's various fees (service fee, credit card fee, offers fee, setup fee, subscription fee) are subject to Texas sales tax?

Plain-English summary

The Texas Comptroller sorted a restaurant mobile-ordering and payment platform's six different fees into taxable and nontaxable categories, splitting mostly along data-processing lines.

The platform lists restaurants, takes customer orders and payments through a mobile app, and remits proceeds (minus its fees) to restaurants weekly. It charges: a Service Fee (percentage of gross sales, covering hardware/software/operations), a Credit Card Fee (payment processing cost pass-through), an optional Offers Fee (featured ad placement plus first-time-purchaser discounts), an optional Earn Plus fee (bonus loyalty points), a Setup Fee (initial account/menu configuration), and a monthly Platform subscription fee (website-based ordering without the app).

Taxable as data processing — Service Fee, Setup Fee, and Platform subscription fee. All three involve storing/retrieving restaurant data, processing and optimizing orders, and generating sales reports — core data processing functions under Texas law. Only 80% of each charge is taxable (20% statutorily exempt).

Taxable — Credit Card Fee, but for a different reason. A 2021 law (Senate Bill 153) generally excludes electronic-payment-settlement charges from data processing tax — but that exclusion specifically does NOT cover charges by a "marketplace provider" (a business that owns/operates a marketplace and processes payments for other sellers). Because this platform is exactly that kind of marketplace provider for the restaurants using it, its Credit Card Fee doesn't get the exclusion and is instead folded into the taxable Service Fee as part of its sales price.

Not taxable — Offers Fee and Earn Plus. The Offers Fee is nontaxable advertising (featured placement, promotional discounts) — Texas doesn't tax standalone ad-placement services. Earn Plus (extra loyalty points) is treated like a gift certificate: issuing points isn't itself taxable, though when a customer later redeems points for a purchase, tax is still due on the full pre-discount price of that purchase.

What this means for you

Restaurant ordering/delivery platforms and similar marketplace apps

Expect your core platform/service fees (covering software, hosting, order processing, reporting) to be taxed as data processing at 80% of the charge. Payment-processing fees you charge merchants will generally ALSO be taxable if you're a "marketplace provider" under § 151.0242 — the 2021 payment-settlement carve-out doesn't reach marketplace providers, unlike the bank-sponsored payment processors it was designed for.

Restaurants and merchants using these platforms

Your platform fees (service, setup, subscription) should show sales tax on 80% of the charge. Advertising/promotional add-ons (featured placement, first-purchase discounts) should not be taxed, and loyalty-point issuance fees generally aren't either — though full-price tax still applies when a customer redeems points.

Accountants and tax professionals for marketplace/platform clients

This ruling is a useful companion to the payment-card-management ruling reaching the opposite conclusion (PLR 202204028L) — the deciding factor is whether the payment processor itself is a "marketplace provider" under § 151.0242. Bank-sponsored settlement companies without their own marketplace get the SB 153 exclusion; marketplace providers processing payments for third-party sellers on their own platform do not.

Common questions

Q: Are online ordering platform fees charged to restaurants taxable in Texas?
A: Generally yes, if the fee covers software, hosting, order processing, or reporting functions — these are taxed as data processing services at 80% of the charge.

Q: Why was the Credit Card Fee taxable here when a similar payment-processing fee was ruled nontaxable in another case?
A: Because this company is a "marketplace provider" under § 151.0242 (it owns/operates the ordering marketplace and processes payments for restaurant sellers). The 2021 payment-settlement tax exclusion specifically excludes marketplace providers from its coverage, unlike bank-sponsored settlement arrangements.

Q: Is advertising or promotional placement on a restaurant ordering app taxable?
A: No — nontangible advertising services like featured ad placement are not on Texas's list of taxable services.

Q: Are loyalty/reward points taxable when issued or when redeemed?
A: Issuing points (like the Earn Plus fee) is treated like selling a gift certificate — not taxable. But when a customer redeems points for a purchase, sales tax is still due on the full pre-discount price of that purchase.

Q: Can I rely on this ruling for my own ordering/marketplace platform?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific fee structure and facts and can't be relied on by others.

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)(12) (Taxable Services — data processing)
• Tex. Tax Code § 151.0035 (Data Processing Service — definition)
• Tex. Tax Code § 151.007(a)(2) (Sales Price or Receipts)
• Tex. Tax Code § 151.0242(a)(1)-(2) (Marketplace Providers and Marketplace Sellers — definitions)
• Tex. Tax Code § 151.351 (Information Services and Data Processing Services — 20% exemption)
• 34 Tex. Admin. Code § 3.330(a)(1), (d)(3) (Data Processing Services)
• 34 Tex. Admin. Code § 3.321(a)(5), (e)(1) (Advertising Agencies — nontaxable ad placement)
• S.B. 153, 87th Legislature (2021) (settling electronic payment transaction exclusion, marketplace provider carve-out)
• STAR Accession No. 201106112L (June 1, 2011) (deals/discounts treated as gift certificates)
• STAR Accession No. 202104037L (April 23, 2021) (gift certificate purchase not taxable)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202109055L

Original ruling text

September 17, 2021

Re: Private Letter Ruling No. PLR20200218100745

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Jan. 23, 2020, and supplemental information dated July 9, 2020, Dec. 14, 2020, and Aug. 31, 2021. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of **’s (Taxpayer) revenue sources, including various fees charged to restaurant clients.

Facts Presented

Taxpayer provides a mobile ordering and payment platform to restaurants that allows the restaurants to accept food orders from customers placed through a Mobile Application.

Taxpayer’s Merchant Agreement (Agreement) states that the Taxpayer lists a restaurant in the Mobile Application and accepts orders from users on behalf of the restaurant. See Section 1 of the Agreement.

According to Taxpayer’s website and software application, the Mobile Application displays restaurants to customers by category or in search results. The Mobile Application also provides customers with restaurant information including street address, approximate walking distance, hours of operation, cover photos, menu information, and approximate ready times.

The Mobile Application allows customers to create an order, checkout, and pay directly for food and tips. Customers can add credit card payment information. The Mobile Application provides customers with an itemized list of charges at checkout. Restaurants are notified of orders placed through the Mobile Application and may accept or reject an order. Taxpayer collects payment from customers on behalf of the restaurant plus applicable taxes. Section 1 of the Agreement. Taxpayer utilizes a third-party processor to settle the payment transaction.

Taxpayer remits the total amount collected from customers for their orders less Taxpayer’s fees to the restaurant on a weekly basis. Taxpayer automatically deducts its fees from gross sales per week. The restaurant is responsible for remitting tax to the state. Section 2 of the Agreement. Taxpayer provides detailed reporting for individually completed transactions, a summary of gross sales, its fee, and a net sales amount. Section 3 of the Agreement.

Based on information from its original request, supplemental information, and the Agreement, Taxpayer charges restaurants the following fees:

Service Fee (a percentage of gross sales per week) – Restaurants pay for Taxpayer’s service, including all hardware (i.e. phone, tablet, or printers), software, payment remittance fees, and other expenses incurred by Taxpayer to operate the Mobile Application. See Sections 2 and 10 of the Agreement. Taxpayer retains ownership to the equipment. Section 10 of the Agreement.

Credit Card Fee (a percentage plus a fixed dollar amount per transaction) – Taxpayer charges restaurants to offset its costs associated with settling payment through its third-party processor. Taxpayer may make a small margin or may lose money.

Offers Fee – This fee is optional. Taxpayer provides featured placement on the Mobile Application and first-time purchaser credits or bonus points to attract new customers (ex: 50% off the customer’s first order).

Earn Plus – This fee is optional. Taxpayer charges to issue additional bonus points to customers as an incentive to visit a restaurant (ex: 20 times the regular number of points).

Setup Fee – Taxpayer charges restaurants a setup fee to cover the initial installation and configuration of the equipment, including configuring the account and developing a digital version of the restaurant’s menu.

Taxpayer states that when a customer redeems reward points, Taxpayer collects tax on the full amount of an order before reducing the amount by the dollar value of the rewards points, if any.

Taxpayer also offers a monthly subscription service providing the Taxpayer's online ordering platform. Taxpayer charges a fee separate from the fees charged for the Mobile Application (ex. $69 per month per location)

According to Taxpayer’s website, in addition to the functionality found in the Mobile Application, Taxpayer's Platform allows a restaurant to use links provided by Taxpayer for customers to order through social media, search engine searches, and QR codes. Taxpayer's Platform also allows for additional functionality for curbside pickup and table ordering.

Taxpayer's Platform can work with or without a website. Taxpayer does not design or host websites. Taxpayer powers the online ordering through a custom mobile ordering page from an existing website and social media accounts. Customers do not need to download the Mobile Application.

Questions, Rulings, and Analyses

Our restatement of your questions is shown below, followed by our responses and analyses.

Question One: Is the Service Fee a charge for a nontaxable service or a charge for data processing services as defined in Section 151.0035 (“Data Processing Service”)?

Ruling One: Taxpayer’s Service Fee is a charge for data processing services as defined in Section 151.0035.

Analysis: Section 151.051 (Sales Tax Imposed) imposes tax on each sale of a taxable item in the state. Section 151.010 (Taxable Item) defines the term “taxable item” to include taxable services. Section 151.0101(a)(12) (“Taxable Services”) includes data processing services as taxable services.

Section 151.0035 defines data processing services as including “word processing, data entry, data retrieval, data search, information compilation, payroll and business accounting, data production, and other computerized data and information storage or manipulation.”

Rule 3.330(a)(1) (Data Processing Services) further defines data processing services as “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information.”

The Service Fee provides restaurants with use of the Mobile Application and its restaurant interface. The Mobile Application stores and retrieves restaurants’ data, including address information, distance information based on GPS location data, cover photos, menu information, and approximate time food will be ready. The Mobile Application also creates orders, optimizes orders, processes payment, and stores customers credit card payment information. Finally, Taxpayer provides reporting of sales data to restaurants.

These activities performed for the Service Fee involve the compilation, storage, and manipulation of data for the restaurants. The Service Fee therefore falls under the definition of data processing services and is taxable.

Section 151.351 (Information Services and Data Processing Services) provides a 20 percent exemption for data processing services. Taxpayer is responsible for collecting and remitting sales and use tax on 80 percent of the Service Fee charged to restaurants.

Question Two: Is the Credit Card Fee a charge for a nontaxable service or a charge for data processing service as defined in Section 151.0035?

Ruling Two: The Credit Card Fee is part of the sales price of the Service Fee and is taxable as a data processing service as defined in Section 151.0035.

Analysis: Section 151.007(a)(2) (“Sales Price” or “Receipts”) provides, in part, that the sales price of a taxable item means the total amount for which a taxable item is sold, valued in money, without deduction for the cost of the materials used, labor or service employed, interest, losses, or other expenses.

Senate Bill (SB) 153, 87th Legislature, R.S., 2021 (codified at Section 151.0035), clarifies existing policy regarding payment processing services. SB 153 excludes from the definition of data processing the settling of an electronic payment transaction by a licensed money transmitter. The “settling of an electronic payment transaction” is defined as the authorization, clearing, or funding of a payment made by credit card, debit card, gift card, stored value card, electronic check, virtual currency, loyalty program currency such as points or miles, or a similar method.

The “settling of an electronic payment transaction” does not include charges by a marketplace provider, as that term is defined by Section 151.0242 (Marketplace Providers and Marketplace Sellers). “Marketplace provider” is defined as “a person who owns or operates a marketplace and directly or indirectly processes sales or payments for marketplace sellers.” Section 151.0242(a)(2). A “marketplace” is “a physical or electronic medium through which persons other than the owner or operator of the medium make sales of taxable items.” Section 151.0242(a)(1).

Taxpayer’s Mobile Application is a marketplace and Taxpayer is a marketplace provider. As a marketplace provider, Taxpayer’s Credit Card Fee is not excluded from the definition of data processing by SB 153. The Credit Card Fee charged to restaurants is a charge for an expense that Taxpayer incurs to provide its taxable service. It is part of the sales price of the Service Fee and is taxable as a data processing service. Section 151.007(a)(2); Rule 3.330(d)(3).

Question Three: Is the Offers Fee a charge for a nontaxable service or a charge for data processing services as defined in Section 151.0035?

Ruling Three: The Offers Fee is a charge for a nontaxable service.

Analysis: Taxpayer’s Offers Fee provides featured ad placement to restaurants’ clients and allows restaurants to issue reward points to customers as an incentive to order food.

Advertising services are not included in the list of taxable services under Section 151.0101. Rule 3.321(a)(5) (Advertising Agencies) provides a list of nontangible services including ad placement, telephone ads, or text ads. These services are not taxable unless related to the sale of employee-fabricated property or other taxable items. Rule 3.321(a)(5); (e)(1).

Deals offered by sellers through third parties, such as social media and radio stations, are treated as gift certificates. STAR Accession No. 201106112L (June 1, 2011). The purchase of a gift card or gift certificate is not taxable. STAR Accession No. 202104037L (April 23, 2021). When redeemed, the deal is treated like cash given for the purchase of the item. If the item purchased is taxable, sales tax is due on the full sales price, including any amount paid with the use of the deal. STAR Accession No. 201106112L.

The Offers Fee is a charge for a nontangible advertising service described by Rule 3.321 and is not taxable. The rewards points are equivalent to gift certificates. Sales and use tax is due on the full sales price of orders placed through the Mobile Application, including the amount paid with the use of the reward points.

Question Four: Is Earn Plus a charge for a nontaxable service or a charge for data processing services as defined in Section 151.0035?

Ruling Four: Earn Plus is a charge for nontaxable services. Earn Plus simply provides additional rewards points to customers. See Analysis for Ruling Three regarding gift certificates.

Question Five: Is the Setup Fee a charge for a nontaxable service or a charge for data processing services as defined in Section 151.0035?

Ruling Five: The Setup Fee is a charge for data processing services as defined in Section 151.0035. The Setup Fee involves data entry, storage, and manipulation to configure and add a restaurant to the Mobile Application. See Analysis for Ruling One.

Question Six: Is the subscription fee for Taxpayer's Platform a charge for a nontaxable service or a charge for a data processing service as defined in Section 151.0035?

Ruling Six: The subscription fee for Taxpayer's Platform is a charge for data processing service as defined in Section 151.0035.

Analysis: Taxpayer's Platform provides the services offered through the Service Fee and Credit Card Fee via websites without requiring the use of the Mobile Application. It involves the manipulation and retrieval of data through its ordering functionality. Therefore, the subscription service fee for Taxpayer's Platform is a charge for data processing services. See Analysis for Ruling One.

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. 20200218100745.

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.