When did Texas treat computer-assisted work as taxable word processing or data processing rather than nontaxable professional accounting?

Plain-English summary

The Comptroller said computer word processing, printing accounts-receivable billings, and printing payroll checks were taxable data processing because the customer paid for data storage, manipulation, and retrieval rather than accounting expertise.

Financial reports, printed tax returns, and other services requiring knowledge of accounting principles or tax law were nontaxable professional accounting services. In those cases, the computer was merely a tool used to provide the professional service.

The explanation applied equally to CPAs, enrolled agents, and tax consultants performing accounting services.

What this means for you

Under the historical distinction, computer use alone did not control. The result depended on whether the customer bought processing functions or professional accounting and tax expertise.

Common questions

Was word processing taxable? Yes.

Were accounts-receivable billings and payroll checks taxable? Yes, when printed by computer as described.

Were financial reports and printed tax returns taxable? No, when they required professional accounting or tax knowledge.

Did the body address supplies used in the service? No, despite the STAR caption.

Citations and references

• The letter refers to a proposed data-processing rule but does not identify it by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0849G01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller December 7, 1987

Dear ***:

Thank you for your comments on our proposed rule on data processing
services.

I appreciate your concern. Let me take a minute to further explain the
types
of activities that will be taxable as "data processing services".

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 CPAs, enrolled agents and tax
consultants who perform accounting services.

If you have any questions or need more information, you may write or call
our
Tax Policy Division at 1-800-252-5555 toll free from anywhere in Texas.
The
regular number is 512/463-4600.

Sincerely,
Willis Whatley
Executive Assistant