When did Texas treat an accountant's computer work as taxable data processing rather than nontaxable professional accounting?

Plain-English summary

The Comptroller distinguished work purchased for computer processing from work purchased for professional expertise.

Using a computer for word processing, printing accounts-receivable billings, or printing payroll checks was taxable data processing because the customer paid for data storage, manipulation, and retrieval. By contrast, financial reports, printed tax returns, and other services requiring accounting principles or tax-law knowledge were nontaxable professional accounting services; the computer merely helped provide the professional service.

The same distinction applied to CPAs, enrolled agents, and tax consultants. A Texas client buying taxable data processing from an out-of-state company owed Texas use tax. If the seller was not required to collect it, the client still had to pay the Comptroller directly.

What this means for you

Under the historical letter, using a computer did not automatically make a service taxable. The question was whether the customer bought data processing or the provider's accounting and tax expertise.

Common questions

Was payroll-check printing taxable? Yes. The letter classified it as data processing.

Were accounts-receivable billings taxable? Printing them by computer was taxable.

Were printed tax returns taxable? Not when preparing them required tax-law expertise; the letter treated that as professional accounting.

Did the rule apply only to CPAs? No. The letter also named enrolled agents and tax consultants.

What if a Texas client bought taxable processing from outside Texas? Texas use tax was due, even if the out-of-state seller did not collect it.

Citations and references

• No statute or administrative rule is cited in the letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0849E01

Original ruling text

Bob Bullock
Comptroller of Public Accounts
Austin, Texas 78774

December 18, 1987

Dear **:

Representative * sent me a copy of your letter concerning the newly
taxable data processing services. I asked my Tax Policy Division to review
your comments.

They tell me that some of your services will be taxable, but not exactly
in the way you described it.

When you use your computer to provide word processing services, to print
accounts receivable billings, or to print payroll checks, you have provided
taxable data processing services. These services do not require your accounting
expertise. In this situation, your client has paid you for data storage,
manipulation and retrieval.

When you provide your client financial reports, printed tax returns, or
other services which require you to apply your knowledge of accounting
principles and tax laws, you are not providing taxable data processing
services. You are providing professional accounting services. In this
situation, your client has paid for your professional expertise, the computer
was merely used to provide the service.

This information applies equally to CPA'S, enrolled agents and tax
consultants who perform accounting services.

If a client in Texas contracts with a company outside Texas for taxable
data processing services, Texas use tax is due on the service. The use tax
protects Texas data processing companies from losing business to companies
outside Texas. If the out-of-state company is not required to collect tax, the
Texas client is still required to pay the tax directly to the Comptroller.

If you need further clarification, please contact the folks in my sales
tax policy section. The toll-free number is 1-800-531-5441.

Sincerely,
BOB BULLOCK
Comptroller of Public Accounts