Which bookkeeping, accounting, tax-return, financial-statement, payroll, billing, check-preparation, notary, and consulting services were taxable?

Plain-English summary

Bookkeeping was nontaxable whether performed manually or by computer when the firm kept client records and applied accounting principles and tax law. That was accounting service, not data processing.

The following were also nontaxable:

• federal income, state franchise, and sales-tax return preparation;
• financial statements prepared from bookkeeping records;
• notary services; and
• tax consultation.

The following were taxable:

• filing payroll-tax returns;
• preparing W-2 forms;
• computing and preparing payroll checks;
• accounts-receivable billing done by computer; and
• accounts-payable check preparation done by computer.

The firm had to separately bill and collect tax on its taxable services.

What this means for you

The historical distinction followed professional accounting judgment versus mechanical or computerized payroll, billing, and check processing.

Common questions

Was computerized bookkeeping taxable? No, when it remained accounting service.

Was tax-return preparation taxable? No, for the returns listed.

Was payroll processing taxable? Yes, for the listed filing, W-2, and check work.

Did taxable services need separate billing? Yes.

Citations and references

The letter cites no numbered statute or rule; it says a data-processing rule and bulletin were enclosed.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0855D02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 18, 1988

Dear ***:

Your letter asking whether your firm should collect tax on its services
came
to Mr. Bullock's attention and he asked me to look into it. I'm sorry you
have not received the information you needed but we have no record of
receiving any previous letter from you.

Bookkeeping services are not taxable, whether done manually or with a
computer. When you keep a client's records and you apply your knowledge
of
accounting principles and tax law, you are providing accounting services,
not
data processing services. This is also true when you prepare federal
income
tax, state franchise, or sales tax returns.

Your charges for preparing financial statements from your bookkeeping
client's business records are not taxable. The notary and tax
consultation
services are also not taxable.

You should collect tax on charges for filing the payroll tax returns,
preparing W-2 forms and computing and preparing payroll checks. Also
taxable are accounts receivable billings, and accounts payable check
preparation when done on computer.

You should bill separately for your taxable services and collect tax on
the
amount you charge.

If you have any further questions you may want to use our new toll-free
number for CPA's and tax practitioners, 1-800-248-4093. I am also sending
you a rule and tax bulletin on data processing services that was mailed
to
tax practitioners in December.

Sincerely,
Mona Ezell Shoemate
Tax Policy Division