For an advertising agency selling website development, third-party CRM consulting, branding, and lump-sum retainer marketing services, which of these are taxable data processing or graphic arts, and which are nontaxable consulting?

Plain-English summary

An advertising agency sells a wide range of services across three categories — website development, marketing services, and monthly retainer packages — and asked the Comptroller to sort out which pieces are taxable. The answer varies significantly by service, turning on a recurring theme: planning/strategy/consulting is generally nontaxable, while building, maintaining, or producing something (a website, finished art) is generally taxable.

Website services: Standing alone, a "website blueprint" (goal-setting, site mapping, planning) is nontaxable — it's pure planning, not building anything. But actually creating a website (template-based or custom), designing and developing it, or providing ongoing website support/maintenance is taxable data processing, because building and maintaining a website involves compiling, storing, and manipulating data. If the agency bundles blueprinting and website creation into one package with a single price (as its "custom design and development" service does), Texas presumes the entire bundled charge is taxable — the agency can only carve out the nontaxable blueprint portion if its own books and records establish what percentage of the charge that represents. All taxable website charges get the standard 20% data-processing exemption (so 80% is taxed).

Third-party CRM and marketing consulting: Helping customers set up, configure, and get trained on a third-party CRM platform the agency doesn't itself sell isn't a taxable service — implementation/configuration of someone else's software, and training, aren't on Texas's enumerated taxable list. The same goes for auditing how a customer uses that CRM and recommending improvements, developing a "growth roadmap" (a marketing audit plus a forward-looking action plan), and creating brand messaging or branding guidelines (without any actual logos or finished artwork) — all of this is nontaxable consulting/advisory work. The moment finished graphic art (logos, photographs, other visual assets) enters the picture, though, that becomes taxable graphic arts/tangible personal property, separate from the pure consulting.

Retainer services: Retainer packages billed as one monthly lump sum, covering things like project management, strategy, campaign planning, media placement, copywriting, and marketing-automation training, can legitimately mix nontaxable advisory services with taxable finished-art production (visual design elements, finished graphics) under the same bill. Texas's specific advertising-agency recordkeeping rule lets the agency skip itemizing taxable vs. nontaxable items on customer invoices and skip separately stating the tax amount — but the invoice must indicate that tax is included on whatever taxable items were provided, and the agency's internal books must be able to document exactly which items were taxable and how much tax was collected on them.

What this means for you

Advertising, marketing, and web-development agencies

Map your service catalog against the planning/strategy vs. building/producing line: pure planning, consulting, audits, and messaging development are generally nontaxable, while website creation/maintenance (data processing) and finished art/graphics (tangible personal property) are taxable. If you bundle a nontaxable planning phase with a taxable build phase under one price, be ready to document the nontaxable percentage from your own records, or the whole bundle gets taxed.

Agencies reselling or implementing third-party software platforms

Setup, configuration, training, and usage-optimization consulting for a third-party platform you don't sell yourself generally isn't taxable — a helpful distinction from selling or reselling software/data processing services directly.

Agencies billing retainer or subscription packages

You don't have to itemize every taxable and nontaxable component on a lump-sum retainer invoice under Texas's advertising-agency recordkeeping rule, but you do need internal records that can reconstruct exactly what was taxed and how much — treat this as a real audit-readiness requirement, not an excuse to skip tracking altogether.

Common questions

Q: If a website blueprint is nontaxable alone, why is it taxable when bundled with building the site?
A: Because Texas presumes a single lump-sum charge covering both taxable and nontaxable services is entirely taxable, unless the seller's own books and records can establish what portion relates to the nontaxable piece — bundling without documentation loses the exemption on the nontaxable part.

Q: Does helping a client use a CRM or marketing platform ever become taxable?
A: It can — this ruling's nontaxable conclusion depends on the agency not selling the platform itself and the services being setup/training/consulting rather than data processing. Different facts (e.g., the agency itself selling or hosting the software) could change the analysis.

Q: Do I have to show sales tax as a separate line item on my advertising agency invoices?
A: No — Texas's advertising-agency rule specifically allows skipping separate itemization of taxable/nontaxable items and the tax amount, as long as the invoice indicates tax is included where due and your records can back it up.

Q: Does this ruling apply to my agency's specific service mix?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts. Similar agencies should map their own services against the planning-vs-building distinction with a Texas tax professional, especially for bundled pricing.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010, § 151.009 (sales tax imposition; taxable item; tangible personal property)
• Tex. Tax Code § 151.0101(a)(5), (a)(12) (repair of TPP; data processing as taxable services)
• Tex. Tax Code § 151.0035 (Data Processing Service); § 151.351 (20% data-processing exemption)
• 34 Tex. Admin. Code § 3.330(a)(1), (d), (d)(2) (data processing definition; bundled-charge presumption)
• 34 Tex. Admin. Code § 3.312 (Graphic Arts or Related Occupations)
• 34 Tex. Admin. Code § 3.321(a)(5), (c)(4), (e)(1), (f), (f)(4) (Advertising Agencies — nontangible services; taxable art; recordkeeping)
• Comptroller's Decision No. 44,736 (2005)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202402020L

Original ruling text

February 20, 2024

RE: Private Letter Ruling No. 20221108103742

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 November 7, 2022, along with supplemental information submitted on December 9, 2022, January 13, 2023, and March 3, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

** (Taxpayer) requested guidance on the sales tax treatment of nontaxable and taxable services sold for a lump-sum charge.

Facts Presented

** (Taxpayer) is an advertising agency that provides services in three main categories: website development, marketing services, and retainer services. Taxpayer provides a variety of different services within each category.

Website Services

Taxpayer provides several services related to website planning and development. Taxpayer’s services include website blueprinting, template-based website creation using Taxpayer’s content management system (CMS), custom website design and development, and website support.

Website Blueprint

A website blueprint is the foundation or strategic plan for a customer’s website. Taxpayer’s blueprinting service includes goal setting, site mapping, usability consulting, and planning for website architecture. The service does not include the creation of a website. Blueprinting may be provided on a stand-alone basis or as part of a custom website design and development package.

Template-Based Website Creation

Taxpayer’s CMS is software that includes templates, themes, and frameworks for developing a website. The service involves using the system to develop a website layout, build the website including blog listing and blog article pages, copyrighting, and search engine optimization (SEO) of the site. This service generally takes up to four months to complete.

Custom Website Design and Development

Taxpayer also offers a more comprehensive custom website design and development service. This service consists of two phases. The first phase is the website blueprint phase, as described above, to develop the foundation or strategic plan for a customer’s website. The second phase is the creative and build phase. This phase includes copy development, creating wireframe page layouts, developing page design and functionality including copy and imagery, and final page development and launch. This service is billed as a single charge for website blueprint and creation of the website. The service may take up to one year.

Website Support

Taxpayer’s website support service includes maintenance of a customer’s website and access to Taxpayer’s support team. Customers can submit support tickets to report errors with their website. Taxpayer’s support team then troubleshoot problems and correct any errors with the website.

Marketing Services

Taxpayer’s marketing services include various implementation, training, and consulting services for COMPANY, a third-party customer relationship management (CRM) platform. Taxpayer also provides growth roadmap services and brand messaging and guidelines services to help customers identify their marketing strengths and weakness and develop marketing messaging.

COMPANY Services

COMPANY is a third-party CRM platform that allows users to compile and manage data gathered from interactions with their customers. The platform is made up of six core products related to different business areas including marketing, sales, customer service, content management, operations, and commerce. Each product in the platform is connected to the same underlying CRM database, allowing users to perform analysis from data gathered from each business area. Taxpayer does not sell the CRM platform but offers a number of services to assist customers in the implementation and use of the platform.

COMPANY Setup and COMPANY Activation services involve assisting customers with the initial setup and implementation of the platform. The COMPANY Setup service includes adding customers’ users, connecting customers’ email and website domains, and connecting customers’ social media accounts to the platform. COMPANY Activation services similarly includes initial configuration and customer training on the use of the platform.

Taxpayer also offers COMPANY Sales, Marketing, and Service Audit services. These services help Taxpayer’s customers get the most out of the specific COMPANY Products they have purchased. For example, Taxpayer will help customers identify sales functions that can be better organized or optimized through the COMPANY Sales Hub. Taxpayer will provide recommendations and best practices related to improving customers’ sales, marketing, and customer service functions.

Growth Roadmap

A growth roadmap is a prioritized plan of activities Taxpayer recommends for customers to help them reach their marketing goals. Development of a growth roadmap begins with a growth audit to identify customers’ strengths and weaknesses. Taxpayer audits customers in several areas including goals and performance, sales alignment, branding, current content inventory, and the customer’s website and use of other technology. After the audit is complete, a three-hour workshop is conducted with the customer. This workshop allows Taxpayer to share the audit findings, gain a better understanding of customers’ products, and define the customers’ most important metrics. A roadmap is then developed to provide customers a forward-looking plan for specific actions to take over a three-month period.

Branding Services

Taxpayer also offers brand messaging and branding guidelines services. Brand messaging involves the use of a story framework to create messaging that can be used on a customer’s website and other marketing materials. Branding guidelines services are provided for customers with existing messaging and visual materials. The service involves creating guidelines for asset creation and for the use of elements such as color, imagery and other graphic elements in marketing materials.

Taxpayer states its brand messaging and branding guidelines services do not include the logos, visuals, or other finished art. Taxpayer offers other comprehensive branding packages that may include these graphic arts. Sales of those services are not addressed in this response.

Retainer Services

Taxpayer also provides marketing services that are purchased on a retainer basis. The purchase of retainer services provides access to a dedicated account team that will provide services. Specific activities that may be performed as retainer services include project management, strategy and consulting, campaign planning, media placement, marketing performance reporting, copywriting, keyword research, design of visual elements, the production of finished art, and training on automating repetitive marketing tasks.

Retainer services are billed for a monthly lump-sum amount and provided on a point-based system. Customers receive a certain number of points per month based on the amount charged for retainer services. For example, 1 point may equal $100, and each service provided costs a certain number of points.

Questions, Rulings, and Analysis

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

Question One: Are Taxpayer’s charges for website services subject to sales and use tax?

Ruling One: Taxpayer’s stand-alone website blueprinting service is a nontaxable service.

Taxpayer’s website creation, design and development, and website support services are taxable data processing services.

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). Tangible personal property is “personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner….” Section 151.009 (Tangible Personal Property). Data processing services are included in the list of services subject to Texas sales and use tax. Section 151.0101(a)(12) (Taxable Services).

Data processing includes 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. Section 151.0035 (Data Processing Services). Rule 3.330(a)(1) (Data Processing Services), states data processing includes, “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information.”

The creation and maintenance of websites involve the compilation, storage, and manipulation of data and meet the definition of data processing under Section 151.0035 and Rule 3.330(a)(1). Charges for these services are taxable under Section 151.0101(a)(12). See also Comptroller’s Decision No. 44,736 (2005). Taxpayer’s website creation, custom design and development, and website support services all involve the creation or maintenance of a website. These services are therefore taxable data processing services.

Taxpayer’s website blueprinting service involves the design and planning for a website, but it does not include the creation of the website. The service therefore does not fall under the definition of data processing under Section 151.0035, or the other taxable services listed in Section 151.0101. When provided on a stand-alone basis, Taxpayer’s website blueprinting service is not subject to Texas sales and use tax.

The custom design and development service includes taxable and nontaxable services provided for a single charge. The creation of a customer’s website is a taxable service. Developing a website blueprint is not taxable. Under Rule 3.330(d) a single charge for all of those services together is presumed taxable. Taxpayer’s books and records may be used to establish the percentage of the charge that relates to the nontaxable website blueprint service. Rule 3.330(d)(2).

Section 151.351 (Information Services and Data Processing Services) exempts 20 percent of the charge for data processing services. Taxpayer is responsible for collecting and remitting Texas sales and use tax on 80 percent of its charges for its website creation, custom design and development, and website support services.

Question Two: Are Taxpayer’s charges for COMPANY related consultation, growth roadmap, brand messaging, and branding guidelines services subject to sales and use tax?

Ruling Two: Taxpayer’s COMPANY related services, growth roadmap, brand messaging, and branding guidelines services are not subject to sales and use tax.

Analysis: The COMPANY Setup and Activation services involve Taxpayer’s implementation or configuration of COMPANY products that Taxpayer did not sell and training on the use of those products. Implementation or configuration of a web application by a third-party that does not sell the application does not fall under the list of taxable services provided by Section 151.0101. Training services are also not included as taxable services. Taxpayer’s COMPANY Setup and Activation services are therefore not subject to sales and use tax.

Taxpayer’s COMPANY Audit services involve reviewing how customers use the COMPANY products they have purchased and providing advice and recommendations on how they can more effectively utilize those products. The growth roadmap service similarly involves a review of customers’ current marketing activities and providing recommendations on how to make their marketing more effective. Taxpayer’s brand messaging and branding guidelines services involve the development of marketing messaging and guidelines for the use of elements such as color and imagery when presenting that messaging.

Consultation type services to review a customer’s activities and provide recommendations do not fall under the taxable services listed in Section 151.0101. Marketing consultation services to develop messaging guidelines to present that messaging also do not fall under the list of taxable services. Taxpayer’s COMPANY Audit, growth roadmap, and branding services are therefore not subject to sales and use tax.

This response does not address or apply to branding services that include the development of logos or other finished art by Taxpayer. The sale of graphic arts such as photographs and logos and finished are taxable. Rule 3.312 (Graphic Arts or Related Occupations; Miscellaneous Activities) and Rule 3.321 (Advertising Agencies). Charges for services that include graphic art or finished are taxable.

Three: Are Taxpayer’s lump-sum charges for retainer services subject to sales and use tax?

Ruling Three: Taxpayer’s lump-sum charges for retainer services may include both taxable and nontaxable items. As an advertising agency, taxpayer is not required to separately list these items or list tax on its charges for retainer services. Taxpayer’s invoices must indicate tax was collected on any taxable items provided and Taxpayer’s books and records must document the taxable items provided and the tax collected on those items.

Analysis: Rule 3.321(a)(5) (Advertising Agencies) provides a definition of nontangible services provided by advertising agencies. This definition includes services such as account supervision, consultation, public relations, writing copy, media placement, and market research. These services do not fall under the list of taxable services provided by Section 151.0101. Charges for nontangible services are not subject to sales and use tax. Rule 3.321(e)(1).

Charges to a customer for items including photographs, negatives, photo retouching, and finished art are taxable. Rule 3.321(c)(4). Photographs, negatives, and finished art are taxable tangible personal property. Sections 151.009, .010, .051. Photo retouching is taxable as the repair of tangible personal property. Sections 151.010, .0101(a)(5), .051.

Rule 3.321(f) addresses the records required to be kept by an advertising agency. Rule 3.321(f)(4) states that invoices to clients do not need to list taxable and nontaxable items separately. Tax due is not required to be shown on an invoice, but the advertising agency must indicate on the invoice that tax is included on items that are subject to tax. The advertising agency must be able to document the amount of tax included on its invoices based on its internal records.

Taxpayer may provide both taxable and nontaxable items under its lump-sum charge for retainer services. For example, Taxpayer’s project management, strategy and consulting, campaign planning, media placement, performance reporting, copy writing, keyword research, and marketing automation training are consistent with the nontangible services listed in 3.321(e)(1) and are not taxable. Creating visual design elements and other finished art is taxable.

Based on Rule 3.321(f), Taxpayer is not required to separately list taxable and nontaxable items or to include tax on its invoices to customers for retainer services. Invoices must indicate that tax is included for any taxable items that were provided to customers. Taxpayer is responsible for collecting and remitting tax on any taxable items provided under a charge for retainer services and its books and records must document the tax collected for those items.

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. 20221108103742.

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