Is the lump-sum membership fee for a business-coaching program for contractors — bundling consulting, a resource library, and a free SEO website — fully taxable when only part of what's included is a taxable service?

Plain-English summary

A company runs a paid membership program for HVAC, electrical, plumbing, and roofing contractors — a $17,950 signup fee plus $249/month — that bundles several things together: a dedicated "client success manager" who coaches and mentors the business owner, access to networking events, and a "Hub" of resources including proprietary pricing tools, call scripts, budget templates, KPI trackers, and (per the company's own marketing) a free professional SEO-optimized website. The company asked whether its membership fees are taxable, since it believed the core value — business consulting and coaching — isn't a taxable service in Texas.

The Comptroller agreed that pure business consulting (expert coaching and strategic guidance, like the client success manager role) is not itself a taxable service in Texas, as long as it's separately billed and not tied to a taxable item. But that's not what's happening here. The Hub's library of proprietary business documents and tools is a taxable information service (the company itself conceded this), and the free SEO-optimized website offer is taxable data processing (Texas has previously ruled that website creation/hosting/maintenance involving a customer's information counts as data processing). Since the company charges one lump-sum fee covering both the nontaxable consulting and these taxable services, Texas's bundling rule kicks in: when a taxable service makes up more than 5% of a combined charge, the entire charge is presumed taxable.

The company tried to argue the consulting piece should be carved out as a nontaxable "unrelated service." That escape hatch exists, but only if the nontaxable service is the kind that's commonly sold on its own, standing apart from any taxable service. Here, the company never offers its consulting or coaching separately — it's only ever sold bundled into the membership package. So the carve-out doesn't apply, and the whole lump-sum membership fee is presumed taxable (with the standard 20% exemption that applies to information and data-processing charges generally).

What this means for you

Coaching, consulting, and membership-program businesses

If your program bundles genuinely nontaxable consulting with even a small taxable component (a document library, a "free" website, software access, an app), Texas's 5% threshold means the whole lump-sum fee is presumed taxable unless you separately price and sell the nontaxable piece on a genuine stand-alone basis. Simply calling something a "perk" doesn't help if your own marketing describes it as a core, valuable benefit.

Businesses trying to split taxable and nontaxable charges

To claim the "unrelated service" exemption for a bundled nontaxable component, you generally need to be able to (and actually) sell that component separately in the marketplace — not just claim it's conceptually distinct while only ever selling it as part of a package.

Accountants and tax professionals

Note the Comptroller weighed the taxpayer's own marketing language heavily against its "inconsequential perk" argument — a mismatch between litigation position and marketing copy is a real risk in bundled-service audits. The 5% threshold (Rule 3.342(e)(2)/3.330(d)(2)) and the three-part "unrelated service" test (not taxable, commonly stand-alone, distinct/identifiable — Rule 3.342(e)(1)) are the two operative tests worth flagging for any client selling bundled memberships.

Common questions

Q: Is business consulting ever taxable in Texas?
A: No, standalone consulting/coaching (a consultant's expert opinion) isn't on Texas's list of taxable services — but it only stays nontaxable if it's separately stated and not bundled with a taxable item or service in a single charge.

Q: What made the free website "data processing" instead of just marketing?
A: Because it involves creating, hosting, or maintaining a website where the member's own information is stored or manipulated — Texas has consistently treated that activity as taxable data processing regardless of how it's marketed (e.g., as "free").

Q: Could this company restructure to avoid tax on the consulting portion?
A: Potentially, if it separately priced and genuinely offered the consulting/coaching as a stand-alone product apart from the Hub and website benefits — but bundling it into one membership fee, as done here, pulls the whole charge into the taxable presumption.

Q: Does this ruling apply to my membership or coaching program?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts and marketing. Similar programs should review their own bundling and marketing with a Texas tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010 (sales tax imposition; taxable item)
• Tex. Tax Code § 151.0101(a)(10), (a)(12) (information services; data processing as taxable services)
• Tex. Tax Code § 151.0038 (Information Service)
• Tex. Tax Code § 151.351 (20% exemption for information/data-processing services)
• 34 Tex. Admin. Code § 3.330(a)(1), (d)(1)(C), (d)(2) (Data Processing Services)
• 34 Tex. Admin. Code § 3.342(e)(1), (e)(2) (Information Services — unrelated service test; bundled-charge presumption)
• Comptroller's Decision No. 117,137 (2023); No. 111,839 (2017)
• STAR Accession No. 202010013L (Oct. 22, 2020)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202407027L

Original ruling text

July 25, 2024

RE: Private Letter Ruling No. PLR20230117142804

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. 3, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of **'s (Taxpayer’s), membership-based business systems, professional coaching, software, and networking services. Taxpayer provides its services under the business name “COMPANY A.”

Facts Presented

The relevant facts are based on the Private Letter Ruling request, emailed information provided on July 12, 2023, additional information from a video conference held on March 20, 2023, with Taxpayer, and Taxpayer’s website.

Taxpayer provides membership-based consulting, networking, and other services to contractors in the HVAC, electrical, plumbing, and roofing industries. Taxpayer charges members a $17,950 initial membership signup fee and a $249 monthly membership fees (collectively Membership Fees).

Taxpayer provides consulting and coaching services to members. The provided sample COMPANY A HVAC Member Agreement states that Taxpayer is “in the business of helping HVAC contractors to learn and utilize appropriate methods and techniques of the heating, ventilation and air conditioning contracting business by providing the right to participate as a member in our proprietary program utilizing our intellectual property.”

Taxpayer assigns each member a “client success manager” who acts as an “interim executive.” These managers meet with the member's leadership team to work on coaching and mentoring. Members have access to a “member network” for networking and to live expos and conferences. Taxpayer's website states Taxpayer provides a “comprehensive solution” for business challenges through business systems, professional coaching, training materials, and community help.

Taxpayer offers members access to a “Hub” that includes training materials, such as educational and motivational videos, that are available for download or online viewing. The Hub also contains standardized documents such as bid sheets and Excel templates that it concedes are taxable information services under Section 151.0038 (Information Service).

Taxpayer’s website outlines the benefits of the Hub materials to its members:

Business feels complicated, but COMPANY A makes it simple. We can give you a fresh start, or we can help you find that extra 5-7% net profit. Our comprehensive model has been transforming contracting businesses for 20+ years. You will have access to our entire arsenal: proprietary pricing & sales tools; call scripts; dispatching procedures; budget templates; daily management reports; an entire recruiting system; marketing tools and strategies; key performance indicators (KPIs); and so much more.

Taxpayer states a third party or an affiliate provides contractor software to its members, but only as an “upsell.” Any software provided to its members is billed separately by the third party or affiliate and is not included in the Membership Fee.

Question, Ruling, and Analysis

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

Question: Are Taxpayer’s Membership Fees subject to sales and use tax?

Ruling: Yes. Taxpayer’s Membership Fees are lump-sum fees for both nontaxable consulting services and taxable data processing and information services. The entire Membership Fee is presumed subject to sales and use tax, and twenty percent of that charge is exempt.

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). That list includes data processing and information services. Sections 151.0101(a)(10) and (12).

However, twenty percent of the charge for a data processing or information service is exempt. Section 151.351 (Information Services and Data Processing Services).

Taxpayer’s membership fee is a lump-sum charge for nontaxable business consulting services and taxable data processing and information services.

Business Consulting Services

Taxpayer provides members business management consulting services to help them run their businesses. Taxpayer provides each member access to a client success manager who offer tailored coaching and training. These managers also act as an “interim executive” to help the business owners identify and execute strategic business goals. The type of management consulting services Taxpayer provides to its members are not listed as a taxable service under Section 151.0101. See also Rule 3.330(d)(1)(C) (Data Processing Services). Consulting services, which are a consultant’s expert or professional opinion, are not taxable when the charges are separately stated and not connected in any way to the sale of a taxable item. See Comptroller’s Decision No. 117,137 (2023).

Data Processing Services

Data processing services include 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). Website creation, website hosting, and website maintenance, where the member’s information is stored or manipulated, is taxable data processing. See Comptroller’s Decision No. 111,839 (2017) and STAR Accession No. 202010013L (Oct. 22, 2020).

Taxpayer’s website states it provides “Marketing Tools & Strategies—Including a 100% Free SEO-Optimized Website.” The website further states, “Among our greatest tools is a 100% free, professional, SEO-optimized website. Even if you love your website, we have SEO professionals who can audit it to help you make it better and get you ranking higher.” Accordingly, Taxpayer is providing a data processing service. See Comptroller’s Decision No. 111,839 (2017) and STAR Accession No. 202010013L (Oct. 22, 2020).

Information Services

Section 151.0038 defines an information service as “furnishing general or specialized news or other current information” or “electronic data retrieval or research.” Taxpayer has stated that it provides members with access to a variety of documents in the “Hub” and concedes contains current information and fits the definition of an information service under Section 151.0038. Taxpayer asserts these documents are merely an inconsequential perk for members with a nominal value. However, Taxpayer’s website clearly states it is providing a valuable benefit, not an inconsequential perk. Taxpayer's Hub provides an entire library of resources to members, including “proprietary pricing & sales tools; call scripts; dispatching procedures; budget templates; daily management reports; an entire recruiting system; marketing tools and strategies; key performance indicators (KPIs); and so much more.”

When “nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable.” See Rule 3.342(e)(2) (Information Services) and Rule 3.330(d)(2). As Taxpayer is providing both nontaxable consulting and taxable information services and data processing services, we must determine if the consulting is an unrelated service.

A service will be considered unrelated if it is not an information service, data processing service, or another taxable service; is of a type which is commonly provided as a stand- alone basis; and the performance of the unrelated service is distinct and identifiable. Rule 3.342(e)(1) (Information Services); see also 3.330(d)(1). Consulting and training are examples of services that could be unrelated services under Rule 3.342(e)(1) as they are not a taxable service and are distinct and identifiable. However, Taxpayer does not meet the final requirement for an unrelated service as it does not offer consulting or training services on a stand-alone basis to its members. Instead, the taxable and nontaxable services are only offered as part of the member benefit package that is billed on a lump-sum basis.

Because Taxpayer charges its members a lump sum fee for both nontaxable and taxable services, the entire fee is presumed taxable.

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. 2023017742804.

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.