Is an enrollment marketing company's sale of prospective-student leads to colleges and universities a taxable information service, even when the contract calls the leads 'exclusive'?

Plain-English summary

The Texas Comptroller ruled that an enrollment-marketing company's business of collecting and selling prospective-student leads to colleges and universities is a taxable information service — even though its contracts used the word "exclusive" and prohibited reselling leads without client consent.

Prospective students find the company's ads on social media, fill out a form with personal information (name, address, contact info, degree interests) and their school/program preferences, and opt in to share that data. The company matches students to schools and programs meeting the client's criteria, then delivers each qualified record to every school/program the student selected — sometimes multiple schools at once, if the student opted into more than one.

Texas taxes "information services" generally, but exempts information gathered for a particular client if that information is genuinely proprietary to that client and can't be resold to others by the gatherer. The company argued its "Exclusive Lead Addendum" (barring resale without consent) made its leads proprietary and therefore nontaxable. The Comptroller disagreed on two grounds: (1) the students themselves — not the company or its school clients — control their own personal information, so no client actually holds an enforceable property right in it, following a 2011 Comptroller decision on medical claims information where the same logic applied; and (2) a lead sold simultaneously to multiple schools when a student opts into more than one program isn't "gathered or compiled on behalf of a particular client" the way the proprietary-information exclusion requires — that requires a single-client relationship, which this one-to-many structure doesn't have. The company's attempt to distinguish its facts from a favorable 2011 precedent (where leads were sold to one client at a time) failed for the same reason.

What this means for you

Enrollment marketing and lead-generation companies

Calling your leads "exclusive" in a contract doesn't make them proprietary information for tax purposes if (1) the underlying data subjects (here, students) retain their own control over the information, or (2) the same lead can be sold to more than one client simultaneously. Both defeat the Rule 3.342(a)(5)(A) exclusion, and the resulting sale is a taxable information service.

Colleges, universities, and other buyers of marketing leads

Expect sales tax on lead-purchase invoices from vendors with this kind of multi-client, opt-in lead model — but if your institution qualifies as a governmental or religious/educational/public-service exempt organization under § 151.309 or § 151.310, you can present an exemption certificate to avoid the charge.

Businesses in any industry selling "proprietary" data services

The core test from this ruling generalizes well beyond education: proprietary-information nontaxable treatment requires the client to hold an actual enforceable property right in the data — not just a nonresale clause — and the same data can't be simultaneously sold to competing clients. If either element is missing, expect a taxable-information-service determination.

Common questions

Q: Does calling a data product "exclusive" or "proprietary" in a contract make it tax-exempt?
A: Not automatically. The Comptroller looks at whether the client actually has an enforceable property right in the underlying information and whether it's genuinely gathered for that one client alone — a nonresale clause by itself doesn't satisfy either requirement.

Q: What if the same person's information is shared with more than one client?
A: That defeats the "gathered or compiled on behalf of a particular client" requirement for the proprietary-information exclusion, making the sale a taxable information service rather than exempt.

Q: Can a university avoid paying tax on marketing lead purchases?
A: Only through a separate purchaser-side exemption (governmental entity or qualifying religious/educational/public-service organization under §§ 151.309-.310), obtained with a properly completed exemption certificate given to the seller at the time of sale — not through the seller's own product classification.

Q: Can I rely on this ruling for my own lead-generation business?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific contract structure and facts and can't be relied on by others, though it's a clear articulation of the proprietary-information test.

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 — information services)
• Tex. Tax Code § 151.0038 (Information Service — definition)
• Tex. Tax Code § 151.351 (Information Services and Data Processing Services — 20% exemption)
• Tex. Tax Code § 151.309 (Governmental Entities)
• Tex. Tax Code § 151.310 (Religious, Educational, and Public Service Organizations)
• Tex. Tax Code § 151.054(c), (e) (Gross Receipts Presumed Subject to Tax)
• Tex. Tax Code § 151.104(c), (d) (Sale for Storage, Use, or Consumption)
• 34 Tex. Admin. Code § 3.342(a)(5)(A) (Information Services — proprietary information exclusion)
• 34 Tex. Admin. Code § 3.322(g)(1)-(2) (Exempt Organizations)
• Comptroller's Decision No. 48,328 (2011) (data subjects, not clients, controlled medical claims data)
• Comptroller's Decision No. 104,366 (2011) (single-client-at-a-time leads distinguished)
• STAR Accession No. 9110L1139A01 (Oct. 22, 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/202109061L

Original ruling text

September 30, 2021

RE: Private Letter Ruling No. PLR20201012121830

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 Oct. 5, 2020. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of online leads provided to higher education institutions.

Facts Presented

The relevant facts are based on the request for a Private Letter Ruling submitted for review by ** (Taxpayer) and additional information provided via videoconference on March 25, 2021.

Taxpayer is an enrollment marketing service provider that assists higher education institutions with recruitment, enrollment, and retaining of students through targeted personalized searches and predictive modeling.

Prospective students who click on ads when visiting social media internet sites are brought to a form on either Taxpayer’s platform, an affiliate’s platform, or a paid marketing landing page. The students voluntarily enter personal and private data onto a form: name, age, address, phone number, degree of interest, and any past degrees held, and then they opt-in to share their data with Taxpayer and participating schools and programs.

Taxpayer uses program-specific criteria provided by their clients to analyze if the student’s personal information meets their client’s prerequisite for a program. Taxpayer may request additional information on behalf of their client from a prospective student who is interested in a program with additional prerequisite criteria.

After the prospective student completes the form and clicks “view my schools,” Taxpayer presents the students with schools and programs that match the criteria provided by the client and student.

A prospective student may opt-in to share his or her interest in one or multiple programs provided by one or more clients. Taxpayer delivers a record containing the student information and responses to school-specific questions to each client whose school or program that the qualified prospective student selected. Once the client receives the information, Taxpayer’s agreement states it retains exclusive control of the record and retains the authority to change, delete, and reject any record.

Taxpayer only sells a prospective student’s lead to the schools or programs the student has chosen, and Taxpayer’s Agreement states that they and the client share an exclusive right, title and interest in all personally identifiable and other information for the lead. Taxpayer also provides clients with an Exclusive Lead Addendum that states they will not resell a student lead to a third party without the client’s prior written consent.

Question, Ruling, and Analysis

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

Question: Are the Taxpayer’s online lead generating services nontaxable proprietary information services?

Ruling: The Taxpayer’s online lead generating services are taxable information services, even when made under an agreement that includes Taxpayer’s Exclusive Lead Addendum. Taxpayer is responsible for collecting tax on its sales of information services unless an exemption applies.

Analysis: Texas imposes 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 is listed as a taxable service under Section 151.0101(a)(10). Twenty percent of the charge for a data processing or information service is exempt. Section 151.351.

Section 151.0038 (“Information Service”) defines an information service as “furnishing general or specialized news or other current information” or “electronic data retrieval or research.” But, the sale of information gathered or compiled on behalf of a particular client is nontaxable if the information is of a proprietary nature to that client and may not be sold to others by the person who gathered or compiled the information. Rule 3.342(a)(5)(A). Examples include opinion polls and management consultant reports. Id.

Here, Taxpayer’s services involve the gathering and maintaining of student information for clients who pay for marketing leads on prospective students. Taxpayer uses the information gathered to match the prospective student’s data with an educational program and provides the information to its clients.

Taxpayer, even with its Exclusive Lead Addendum, cannot sell the information to the client in a manner that makes the information proprietary to the client as required in Rule 3.342(a)(5)(A). An information service provider who does not control or own the underlying information cannot provide proprietary information. Taxpayer’s control and ownership of the prospective students’ data is similar to the situation addressed in Comptroller’s Decision No. 48,328 (2011).

In this hearing, the taxpayer provided medical claim information they believed was proprietary because their agreements prohibited the release of information that was highly confidential and protected by federal privacy laws. Id. (citing STAR Accession No. 9110L1139A01 (Oct. 22, 1991)). Ultimately, the Comptroller held that where “. . . it was determined that neither the provider or the client had a proprietary right to the information gathered by the taxpayer but that the sources of the information retained control over the information.” Id. The prospective students retain the right to control their personal information, not Taxpayer’s clients. Consequently, Taxpayer sells taxable information services.

While Taxpayer uses Comptroller’s Decision No. 104,366 (2011) to support its contention that it sells nontaxable information services, this hearing fails to support Taxpayer’s facts or analysis. In that hearing, the taxpayer provided its customer’s marketing lead to only one client at a time, meeting the “gathered or compiled on behalf of a particular client” requirement of Rule 3.342. The fact that the taxpayer later sold marketing leads for that same customer to a different client when the customer changed their dating preferences did not negate that requirement. Here, Taxpayer’s facts indicate the prospective student’s marketing lead are sold to multiple clients at the same time upon the prospective student choosing to “opt-in.”

Taxpayer argues each lead for a particular prospective student is a “unique lead” because Taxpayer may have included the student’s responses to the client’s program-specific questions transmitted in the marketing lead. While each lead may contain slightly different student information, this fact does not change that Taxpayer sells prospective student’s information, and the clients have no enforceable, proprietary rights to that information that the prospective students own as discussed in Comptrollers Decision No. 48,328.

Additionally, Taxpayer’s facts also state they share a prospective student’s information with multiple clients when the student choses to “opt-in” to more than one school when presented with a list of potential schools and programs. As the Exclusive Lead Addendum does not prohibit the Taxpayer from selling the same personal information about a prospective student to multiple clients at the same time, it does not grant a particular client an enforceable property right to a particular prospective student’s information.

Sections 151.309 (Governmental Entities) and 151.310 (Religious, Educational, and Public Service Organizations) provide an exemption for taxable items sold, leased, or rented to, or stored, used, or consumed by, certain governmental entities and religious, educational, and public service organizations.

Taxpayer’s clients may qualify for exemption if they pay Taxpayer for marketing leads and they are a governmental entity identified in Section 151.309 or a religious, educational, or public service organization identified in Section 151.310. See Sections 151.054(c) (Gross Receipts Presumed Subject to Tax) and 151.104(c) (Sale for Storage, Use, or Consumption); Rule 3.322(g)(1) and (2) (Exempt Organizations).

Taxpayer should obtain a properly completed exemption certificate from their clients who are claiming an exemption at the time of sale. See Sections 151.054(e) and 151.104(d). Properly completed exemption certificates should be in the possession of the seller at the time the exempt transaction occurs. See Sections 151.054(e) and 151.104(d).

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. PLR20201012121830.

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.