Could a software-maintenance provider buy computer dial-up line service tax-free for resale when it used the lines to diagnose and adjust customer systems?

Plain-English summary

The provider used computer dial-up lines to access customer systems, analyze problems, and make adjustments as part of canned-software maintenance and technical assistance.

The Comptroller said the line charge was part of taxable maintenance under Rule 3.308(b)(5). The line was a tool used to perform the service, not telecommunications resold to the customer, so the provider could not issue a resale certificate for the line charge.

The telecommunications supplier charged tax on the line. The maintenance provider then charged sales tax on its full fee for the taxable maintenance service, just as a repairer pays tax on tools not transferred to a customer and still taxes the repair charge.

Common questions

Could the dial-up line be bought tax-free for resale? No.

Why not? The provider consumed it as a tool in performing maintenance rather than transferring it to the customer.

Was the customer's full maintenance charge taxable? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.308(b)(5) — taxable maintenance charge described in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8606L0739E10

Original ruling text

June 17, 1986

Dear ***:

Thank you for your letter of May 29, 1986, concerning tax on a telephone
the charge in connection with canned software maintenance and technical
assistance.

I understand that you have computer dial-up lines from ***.
These lines are used to access your customer's computer system to analyze
problems and make adjustments when needed.

The line charge is part of the maintenance charge and is taxable under
Rule 3.308 b)(5). It does not represent the "resale of a telecommunications
service"; the line charge is a tool you use to perform a taxable service. You
may not give *** a resale certificate in lieu of tax on the line
charge. A repairman pays tax on his tools and supplies not transferred to his
customer and also charges his customer tax on his total fee. *****
owes tax on the line charge and should charge tax on the total charge for
taxable maintenance services.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division