Were computer-consulting sessions and custom Lotus 1-2-3 templates or dBase III input and edit screens taxable?
Apply this to your situation
This page answers the general question as of 1988. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
The letter applied proposed Rule 3.306 to three activities:
- Consulting with potential clients about their hardware and software needs was taxable if the consultant sold taxable hardware or software.
- Creating Lotus 1-2-3 templates with the customer's own Lotus software was nontaxable.
- Creating dBase III input and edit screens with the customer's own dBase software was nontaxable.
If the provider instead bought Lotus 1-2-3 or dBase III, used it to create the templates or screens, and sold the result to the customer, tax was due.
What this means for you
The historical distinction turned on whether the provider performed work using the customer's software or acquired software and sold a resulting product. The letter did not address software maintenance or technical support despite STAR's caption.
Common questions
Was needs consulting taxable? Yes, when related to taxable hardware or software the consultant sold.
Was work performed with the customer's Lotus or dBase software taxable? No, for the templates and screens described.
What if the provider bought the software and sold the finished templates or screens? Tax was due.
Citations and references
- Proposed 34 Tex. Admin. Code Rule 3.306 — computer software and hardware rule enclosed with the letter.
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/8801L0900A01
Original ruling text
COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774
January 28, 1988
Dear ***:
On behalf of Mr. Bullock, I hope you'll accept my apology for the
delay
in answering your question involving changes in the sales tax law.
This
isn't the way we normally do business.
Our people were, and still are, swamped by a deluge of inquiries as
they
attempted to interpret provisions of the new law and draft rules
which
would not adversely impact businesses. In many instances, an
answer to
a question just wasn't available when the question arrived.
I have enclosed a copy of proposed Rule 3.306, regarding computer
software
and hardware, for your review.
- Rendering advice on the purchase of computer hardware and
software.
Response: Consultation sessions with potential clients regarding
their
needs would be taxable if the software or hardware you sell is
taxable.
-
Creating templates in Lotus 1-2-3 for inputting and printing
information. -
Creating input and edit screen in dBase III for the purpose of
managing and reporting from a database of information.
Response 2 & 3: If your customer has Lotus 1-2-3 or dBase III
and you
used their Lotus 1-2-3 or dBase III to create templates input and
edit
screen, no tax is due on your service.
If you buy Lotus 1-2-3 or dBase III and use it to create templates
input
and edit screens, and sell this to your customer, tax is due.
This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.
Please feel free to contact me if you have additional questions.
You may
write me, call toll free 1-800-531-5441 from anywhere in the U.S.,
or phone
(512)463-4600.
Sincerely,
Adina Whittemore
Tax Policy Division
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