Were brokerage houses' receipts taxable as data processing when computers were used to give clients the status of their investments?

Plain-English summary

The Comptroller said brokerage houses fit the draft Rule 3.330(a) exception for a provider of another service that used a computer to facilitate that service.

The brokerages provided investment services and used computers to tell clients the status of their investments. Based on those facts, their receipts were not subject to sales tax as data processing.

What this means for you

The historical answer treated investment-status information as part of the brokerage's investment service, not a separately purchased data-processing service. The letter conditions its result on the computer use occurring in association with the described investment services.

Common questions

Were the brokerage receipts taxable as data processing? No, under the facts described.

Why not? The computer helped the brokerage perform and report on its investment services.

Was Rule 3.330 final? No. The letter says the enclosed rule was a completed draft.

Could a separate information service receive the same result? The letter does not decide that situation.

Citations and references

• Proposed 34 Tex. Admin. Code Rule 3.330(a) — draft exception quoted for computer use that facilitates another service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0850B07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller December 4, 1987

Dear ******:

Mr. Bullock has requested that I respond to your inquiry concerning data
processing services as they relate to brokerage houses.

We have just completed a draft of the rule on data processing services,
R.3.330 (copy enclosed), and it would appear that brokerage houses would
fit
the exception.

Rule 3.330(a), states in part ...... data processing does not include
the use
of a computer by a provider of other services when the computer is used
to
facilitate the performance of the service...."

Brokerage houses are performing investment services and as part of those
investment services they provide their clients with the status of those
investments via the aide of computers. Their receipts will not be
subject to
sales tax.

This answer is predicated on the fact that the brokerage houses are
providing
the services you described in association with investment services for
their clients.

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,
F. Wayne McDonald
Tax Policy Division