Were charges for a Texas 'Knowledge Engineering' business-management consulting service taxable when taxable items could be used or transferred?

Plain-English summary

The Texas Comptroller said the charge for the described Knowledge Engineering service was not taxable. The essence of the transaction was business-management consulting, not the transfer of tangible personal property.

Because the consulting service was nontaxable, the provider had to pay tax on all taxable items it used or transferred as part of providing that service.

The attached request listed consulting, travel, books or computer tapes, and computer systems, but the response did not separately classify each line item. It gave the broader essence-of-the-transaction answer based on the conversations and materials supplied.

What this means for you

Calling an offering consulting was not the only factor. The Comptroller looked at the transaction's real object, while treating the provider as the consumer of taxable items used or transferred in delivering the nontaxable service.

Common questions

Was the Knowledge Engineering consulting charge taxable? No.

Why not? Business-management consulting, rather than tangible property, was the transaction's essence.

Who paid tax on taxable items used in the service? The consulting provider.

Did the letter separately decide every travel, book, tape, or computer-system charge? No.

Citations and references

• The letter cited no numbered statute or Comptroller rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8702L0795G12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller February 11, 1987

Dear ***:

Thank you for your letter concerning the taxability of a service CORP A
provides entitled "Knowledge Engineering."

Based on my conversations with you and the information you supplied
through
correspondence the charge by your customer is not taxable. The "essence"
of
the transaction is for business management consulting services and not
the
transfer of personal property. Since these are considered nontaxable
services, CORP A is required to pay tax on all taxable items transferred
or used
as part of that service.

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

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,
F. Wayne McDonald
Tax Policy Section
Tax Administration Division

January 16, 1987

Sales Tax Policy
Public Accounts
Capitol Station
Austin, TX 78774

Dear Sir or Madam:

As you are probably aware "Knowledge Engineering" is a relatively new,
but up-and-coming, consulting field. CORP A already has customers in
your state which is using the consulting service in at least one of the
packages described on the attached sheet.

So that we may comply with your state's sales tax laws concerning con-
sulting services, would you please advise us whether you consider the
following taxable or non-taxable?

1) consulting services only

2) travel expenses in conjunction with consulting services

3) books and/or computer tapes as part of the consulting services

4) computer systems as part of the consulting services

Should you have any questions or need any additional information,
please give me a call at ***.

Sincerely,