Which bookkeeping, payroll, computer-printing, consulting, and software-modification services did Texas treat as taxable in 1988?

Plain-English summary

The Comptroller separated professional accounting work from computer-output services.

Not taxable: bookkeeping; applying accounting principles and tax law to client records; preparing federal income, Texas franchise, or sales-tax returns; preparing financial statements; consulting about insurance, purchasing, forecasting, or budgeting; and modifying an existing computer program not sold by the person doing the modification.

Taxable data processing: using a computer to print invoices, correspondence, or checks; computerized payroll-tax returns, W-2 forms, and payroll checks; and accounts-receivable billings. The same classifications applied when employees performed the work.

What this means for you

The historical line was not simply “accountant versus computer.” Applying professional knowledge to records was treated as accounting, while using a computer to produce specified client outputs was treated as taxable data processing.

Common questions

Was bookkeeping taxable? No.

Were computerized payroll tax returns and W-2s taxable? Yes.

Were financial statements prepared from client records taxable? No.

Was modifying someone else's existing program taxable? No under the stated condition that the modifier had not sold the program.

Citations and references

• 34 Tex. Admin. Code Rule 3.300 — printed in the letter as Data Processing Services.
• 34 Tex. Admin. Code Rule 3.308 — printed in the letter as Hardware, Software, Services and Sales.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0868D06

Original ruling text

February 1, 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. 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.

Bookkeeping services are not taxable. 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 client's records are not
taxable.

When you use a computer to print invoices, print correspondence, and print
checks, you are performing taxable data processing services. You should
collect tax on charges for computerized preparation of payroll tax returns, W-2
forms, and payroll checks. Also taxable are accounts receivable billings.
These rules apply in the same manner to your employees.

Consulting in business matters relating to insurance, purchasing, forecasting
and budgeting are not taxable. Charges to modify an existing computer program
not sold by the person doing the modification are not taxable.

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 sending you Rules 3.300 -
Data Processing Services and 3.308 - Hardware, Software, Services and Sales and
tax bulletins which were mailed to practitioners in December.

Sincerely,

F. Wayne McDonald
Tax Policy Division