Were pension-administration, retirement-plan recordkeeping, tax-form preparation, and benefit calculations taxable data processing?

Plain-English summary

The business kept retirement-plan records and applied accounting principles or tax law. The Comptroller treated those pension-administration services as nontaxable professional services similar to accounting, whether performed manually or with a computer.

The nontaxable work included preparing employee benefit statements, summary annual reports, Form 5500 filings, IRS forms for new plans, and benefit calculations for terminated participants.

The answer would differ for a mere service bureau that only processed returns and reports; that activity would be data processing.

What this means for you

The historical distinction turned on professional judgment, not the presence of a computer. Applying accounting or tax expertise to plan administration was different from mechanical processing.

Common questions

Did using computers make the service taxable? No.

What made the service professional rather than data processing? Applying accounting principles or tax law to client retirement plans.

What would count as data processing? Acting as a mere service bureau that processed returns and reports.

Citations and references

The letter cites no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0900D01

Original ruling text

January 28, 1988

Dear Mr. **:

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.

Your pension administration services are similar to accounting services which
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 or tax
law, as it applies to retirement plans, you are providing nontaxable
professional services. This is also true when you prepare employee benefit
statements, summary annual reports, 5500 forms, IRS forms for new plans, and
benefit calculations for terminated participants. If you were engaged as a mere
service bureau that processed returns and reports, you would be engaged in data
processing.

This opinion is based upon the facts you presented. If there are additional or
different facts, this opinion may change.

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,

F. Wayne McDonald
Tax Policy Division

January 18, 1988

Mr. Bob Bullock

P.O. Box 13528
Austin, TX 78711

Attention: Sales Tax Department

Gentlemen:

We are requesting that you provide us written confirmation as to whether or not
we charge our customers a state sales tax.

Our business is pension administration. We provide record keeping services and
prepare various tax forms for clients who have retirement plans. We do not
provide data processing services but have computers for the purpose of
facilitating our services to clients. Our functions are very similar to
accounting firms except all of our services are related to retirement plans.
Some of the specific functions we perform include preparing employee benefit
statements, summary annual reports, calculating benefits for terminated
participants, trust accounting, 5500 tax forms and tax forms for IRS submission
of new plans.

We would appreciate your reply as soon as possible. If you should have any
questions, please let us know.

Very truly yours,