Did Texas tax the total monthly charge for a commodity-market service supplying continuous quotations, news, weather, and customer monitoring equipment?

Plain-English summary

Effective October 1, 1987, the commodity-market monitoring service was taxable as an information service. The provider had to collect tax on the total charge to its customers.

The service supplied continuous commodity-price quotations and changes, along with news, weather, and other information, over a private channel. Customers used company-owned monitor equipment installed at their locations.

An attached March 27, 1987 letter had analyzed the arrangement as telecommunications and distinguished taxable intrastate service from then-nontaxable interstate long-distance service, with separate equipment rules. The November letter said legislative changes had made both information services and intrastate and interstate telecommunications taxable and reclassified this service as taxable information.

What this means for you

The later letter controls the stated historical result: the total customer charge was taxable after October 1, 1987. The earlier attached analysis explains the prior treatment but not the post-change conclusion.

Common questions

Was the monthly market-information charge taxable after October 1, 1987? Yes.

What amount was taxed? The total charge to the customer.

Did the attached March letter reach the same result? No. It used the earlier telecommunications framework before the legislative change described in November.

Does the body decide a separate stock-quotation or bids service? No. Those words appear in the STAR caption, while the body describes commodity quotations, news, weather, and related information.

Citations and references

• 34 Tex. Admin. Code Rule 3.342(a)(1)(A) and (e)(5) (information services)
• 34 Tex. Admin. Code Rule 3.344(a)(6) and (d) (telecommunications 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/8711L0845D03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 12, 1987

Dear ***:

Thank you for your recent telephone call concerning the taxability of the
situation outlined on our correspondence in March 1987. (Copy attached).

I have reviewed our previous correspondence. It appears that changes
made in
the sales tax law by the Texas legislature in the last legislative
session
have affected the taxability of this situation.

I had previously determined that Company X was the provider of a
telecommunications service and, at the time, interstate
telecommunications
services were not taxable.

Effective October 1, 1987, information services are taxable as are
intrastate
and interstate telecommunications services. The definitions of the two
services overlap. The service that Company X provides for its customers
is
now included as one of the taxable information services. Please refer to
Section (a)(1)(A) and (e)(5) of the enclosed Rule 3.342.

Company X must collect tax on the total charge to its customers for the
information service it provides to its customers. An application for the
Texas
sales and use tax permit is being mailed under separate cover.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 27, 1987

Dear ***:

Thank you for your letter of March 12, 1987 concerning the taxability of
the
situation you described as follows:

FACTS

Company X, a New Jersey corporation, sells a commodity market monitoring
service for a monthly fee of approximately $230.00. This information
service
provides continuous quotations and changes in commodity prices during
normal
market hours along with such news, weather and other information that
Company
X desires to supply. The information service is broadcast to customers
by
Company X via a private channel.

In order to receive the broadcast, a customer must have a "market
monitor"
which is supplied by Company x. The market monitor consists of a
receiver, a
monitor or video screen, and a microprocessor. Company X buys the
receiver
and monitor fully assembled, and assembles the microprocessor from
purchased
components. The amount of labor required to assemble the microprocessor
is
minimal (approximately $50.00) in comparison to the market monitor's
total
cost of $850.00.

The market monitor, and an antenna if necessary, is installed at the
customer's location by Company X for a one-time installation fee. A
security
deposit is also collected to insure the return of all equipment in
operating
condition. The average contract term is one year and the market monitor
remains solely and exclusively the property of Company X at all times.
If a
contract with a customer is terminated for any reason, the equipment is
returned to Company X.

The monthly fee for the information service of approximately $230.00 far
exceeds what one would expect to pay to lease equipment costing $850.00.
Most of the fee is applicable to the information service (including
exchange
fees) and not to recovering the cost of the equipment. Certain exchange
fees
(required by the various Exchanges and Boards of Trade that provide
information) are collected from the customers and passed directly through
to
the appropriate Exchanges or Boards of Trade.

Question 1: Company X may pay a use tax at the time the equipment
is first placed in service with a Texas customer, measured by the
cost of the equipment, and no sales or use tax will be due with
respect to the monthly fee charged by Company X. (Rationale: The
real object sought by Company X's customers is the information ser-
vice provided by Company x, and the equipment is merely used to
render the service. Company X would be viewed as the consumer of
the equipment.)

Response: Company X is the provider of a telecommunications service.
Please refer to section (a)(6) of the enclosed Rule 3.344 Telecommun-
ications Services. Intrastate telecommunications services are
subject to sales tax; interstate long-distance telecommunications
services are not. It is not clear from the information provided
whether the service originates from within Texas or outside of Texas.

If Company X is the provider of a nontaxable interstate long-distance
telecommunications service, the charge for equipment must be separate-
ly stated from the nontaxable services, and sales tax must be collected
on the equipment charge. Please see section(d) of Rule 3.344.

If company X is the provider of a taxable telecommunications service,
sales tax must be collected on the total charge to the customer. The
provider of the service will not owe sales or use tax on equipment
which is actually transferred to the custody or controlof the customer.
Sales or use tax is due on all equipment used to provide the service but
which is not actually transferred to the customer.

Question 2: Company X may pay a use tax at the time the equipment
is
first placed in service with a Texas customer, measured by the cost of
the equipment, and not sales or use tax will be due with respect to the
monthly fee charged by Company X. (Rationale: The equipment is leased
in substantially the same form as when acquired by Company x.)

Response: Please see #1 above.

Telecommunications are subject to state sales tax only at this time.
Local and Metropolitan Transit Authority taxes may not begin before
October 1, 1987 and must be voted in by the governing city or authority.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Julie Pesl
Tax Policy Section
Tax Administration Division