Is a nonprofit's fee for accrediting third-party training centers taxable, and is the separate fee it charges those centers to maintain student certification records in its online repository taxable?

Plain-English summary

A nonprofit sets industry safety standards for the energy sector (helicopter safety/escape, sea survival, firefighting/self-rescue) and accredits independently owned training centers to teach those courses. The nonprofit doesn't train students directly — it reviews a training center's course materials, verifies its facilities and equipment, and periodically re-checks accreditation. Separately, the nonprofit maintains an online repository tracking which students completed which certified courses, so students and employers can verify current certifications; it charges training centers a monthly fee (based on certified-student volume) to add and update records in that repository. The nonprofit asked whether either the certification/accreditation work or the registration fee is taxable.

The accreditation/certification service itself is not taxable. Texas only taxes services on its specific enumerated list, and reviewing a training center's curriculum, materials, and facilities to grant or maintain accreditation isn't one of the listed taxable services — it's simply not covered.

The registration fee for the online database IS taxable, as data processing. Adding new student certification records, updating their status, and maintaining that information in a searchable online repository is exactly the kind of "computerized data and information storage or manipulation" that Texas's data-processing tax covers — regardless of the certifying organization's nonprofit status. Only 20% of that registration fee is exempt under the standard data-processing exemption; the nonprofit must collect and remit tax on the remaining 80%.

What this means for you

Certification, accreditation, and standards bodies

Being a nonprofit doesn't exempt your organization from Texas sales tax on data-processing-type charges. This ruling draws a clean line: the actual accreditation/review work (evaluating whether a program meets your standards) is untaxed, but a separate fee for maintaining a searchable digital record system of certifications is taxed as data processing — so keep those two revenue streams (and their invoicing) separate.

Training centers and franchise/license networks

If you pay an accrediting or standard-setting body both an accreditation fee and a separate database/registry fee, expect only the registry portion to carry sales tax. Reviewing your invoices for this split can avoid overpaying (or underpaying) tax on the wrong line item.

Accountants and tax professionals

This is a useful, low-complexity template for the recurring "is my client's core professional service versus its digital-recordkeeping add-on taxable" question — the enumerated-services test knocks out tax on the substantive review work, while the broad data-processing definition catches even simple database maintenance and record entry.

Common questions

Q: Why is the database fee taxable when the accreditation work isn't?
A: Because Texas only taxes specific enumerated services, and accreditation/certification review isn't one of them — but "data processing" is broadly defined to include computerized storage, entry, and manipulation of information, which the database maintenance clearly is.

Q: Does the 20% exemption apply automatically?
A: Yes — Texas exempts 20% of any data processing service charge by default under § 151.351; the taxpayer here collects and remits tax on the remaining 80% of the registration fee.

Q: Does this ruling apply to my certification or accreditation organization?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts. Similar organizations should review how their own fees are structured and billed 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)(12) (data processing as a taxable service)
• Tex. Tax Code § 151.0035(a)(1) (Data Processing Service)
• Tex. Tax Code § 151.351 (20% data-processing exemption)
• 34 Tex. Admin. Code § 3.330(a)(1) (Data Processing Services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202407028L

Original ruling text

July 25, 2024

RE: Private Letter Ruling No. 20230523143419

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 May 9, 2023, and supplemental submissions on July 14 and Aug. 10, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of certification services and registration fees provided to third party learning centers.

Facts Presented

** (Taxpayer) is a not-for-profit entity who sets standards related to workforce safety and competence for the energy industry and develops vocational certification programs pursuant to those industry standards. Programs can include helicopter safety and escape, sea survival and first aid, and firefighting and self-rescue training.

Taxpayer does not provide training directly to students. Taxpayer provides certification services to independently owned and operated learning centers (LC) that then provide the training to students. Taxpayer maintains guidance on the required levels of learning outcomes in course content, and the LCs create the training materials and deliver the training programs based on Taxpayer’s standards.

After an LC develops course material, Taxpayer performs a thorough review of the LC’s course topics, training materials, and training plans to verify the materials fit Taxpayer’s standards. Taxpayer then conducts an onsite or virtual visit of an LC facility that includes observation of the LCs training to verify the LC has the recommended equipment and facilities to provide approved programs.

Once an LC is approved and certified, the LC can train students in Taxpayer’s programs and issue students accredited certifications at the completion of each course. An LC’s accreditation is also subject to periodic review to ensure that the required level of training is being maintained.

Taxpayer also maintains an online repository of courses taken by individual students. This includes information on whether the student has received a certification and whether the student’s certification is current. This information can be used by students and employers to track and verify a student’s completed courses and training certifications.

Taxpayer charges LCs a registration fee to store, update, and add new certification information on their digital repository. The registration fee is a monthly charge based on the number of students that receive certification for completing a course.

Questions, Rulings, and Analysis

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

Question One: Is Taxpayer’s certification service subject to Texas sales and use tax?

Ruling One: No, Taxpayer’s certification service is nontaxable.

Analysis One: 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). Only the specifically enumerated services listed in Section 151.0101 (Taxable Services) are taxable.

Taxpayer’s certification service includes the review and approval of an LC’s training classes and materials, equipment, and facilities to ensure LCs provide training that meets Taxpayer’s standards. Performing this type of review in order provide an accreditation or certification is not included in the enumerated list of taxable services in Section 151.0101. Therefore, Taxpayer’s certification services are not subject to Texas sales and use tax.

Question Two: Is the registration fee subject to Texas sales and use tax?

Ruling Two: Yes, the registration fee is taxable as a data processing service.

Analysis Two: Data processing services are included in the enumerated services in Section 151.0101(a)(12) (Taxable Services). Section 151.0035(a)(1) (Data Processing

Service) states that a data processing service includes, in part, “word processing, data entry, data retrieval, data search, information compilation… and other computerized data and information storage or manipulation.” See also Rule 3.330(a)(1) (Data Processing Services).

Taxpayer maintains and updates an online repository of student certifications for courses completed by students. Adding new student certifications, updating the status of student certifications, and maintaining the information in the repository constitute data entry and the computerized storage and manipulation of information as described in Section 151.0035(a)(1) and Rule 3.330(a)(1). Therefore, Taxpayer is providing a taxable data processing service.

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 monthly registration fee from LCs.

The Texas Tax Code and Texas Administrative Code 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. 20230523143419.

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.