Which manual and computer-based tax, payroll, accounting, reporting, and consulting services did Texas treat as taxable?

Plain-English summary

The Comptroller classified the accounting provider's services as follows:

• Manually prepared public tax returns were nontaxable.
• Computer-prepared client payrolls became taxable January 1, 1988.
• Financial-report preparation was nontaxable, but preparing client accounting records by computer was taxable.
• Manual financial and management consulting with written reports was nontaxable.
• Manually prepared miscellaneous client reports were nontaxable.

When unrelated taxable and nontaxable services were sold for one charge and the taxable portion exceeded 1% of the total, the entire charge was presumed taxable. The seller could overcome that presumption at the time of the transaction by separately stating a reasonable charge for the taxable services.

The letter allowed a resale certificate for tangible personal property only when care, custody, and control of the property transferred to the client. STAR later added an alert directing readers to Rule 3.285, amended November 1, 2017, for specific guidance on that issue.

What this means for you

The historical letter distinguished manual professional work from certain computer data-processing services and required reasonable separation of taxable services on mixed invoices. Both the underlying 1987 classifications and the later STAR alert require current-law verification.

Common questions

Were manually prepared tax returns taxable? No.

Was computer payroll processing taxable? The letter said it became taxable January 1, 1988.

Were financial statements and accounting records treated the same? No. Financial-report preparation was nontaxable, while computer preparation of accounting records was taxable.

What happened to a single mixed charge? If the taxable portion exceeded 1%, the whole charge was presumed taxable unless a reasonable taxable charge was separately stated when the transaction occurred.

Were manual consulting reports taxable? No. The letter treated manual financial and management consulting and manual miscellaneous reports as nontaxable.

When could tangible personal property be bought for resale? The letter required care, custody, and control to transfer to the client; STAR's later alert points to Rule 3.285 for guidance.

Citations and references

• 34 Tex. Admin. Code Rule 3.330 — historical data-processing-services rule enclosed with the letter.
• 34 Tex. Admin. Code Rule 3.285 — cited in STAR's later alert for resale certificates and care, custody, and control; the alert says it was amended November 1, 2017.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0849D13

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale amended 11/01/2017.

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, 78774

BOB BULLOCK

Comptroller December 16, 1987

Dear ***:

Thank you for your inquiry concerning taxability of your business

services.

Following is a brief summary of the type service you perform and the

taxability.

1. Prepare tax returns for the public by manual means. Not taxable.

2. Prepare payrolls for client by computer. Taxable as of January 1,

1988.

3. Prepare financial reports and accounting records for clients by

computer. Preparation of a financial report is not taxable. Prepa-

ration of accounting records for clients by computer is taxable.

Where nontaxable unrelated services and taxable services are sold or

purchased for single charge and the portion relating to taxable services

represents more than 1% of the total charge, the total charge is

presumed to be taxable. The presumption may be overcome by the seller

at the time the transaction occurs by separately stating to the customer

a reasonable charge for the taxable services.

4. Furnish financial and management consulting and prepare written

reports

manually. Not taxable.

5. Do miscellaneous reports for clients manually. Not taxable.

You may issue a resale certificate in lieu of tax to suppliers of

tangible

personal property only if care, custody, and control of the property is

transferred to the client.

Rule 3.330, Data Processing Services, is enclosed for your reference.

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 our

toll-free

number 1-800-531-5441. The regular number is 512/463-4600. You may write

me

at the Tax Policy Division.

Sincerely,

(Mrs.) Jo Ann Dieck

Tax Policy Division