Ezel / Tax Rulings / TX
TX 8805L0871D02 Sales and/or Use Tax (State,Local,MTA) 1988-05-19

Which automatic-teller-machine network charges did Texas treat as taxable or nontaxable?

Short answer: Texas taxed ATM per-transaction processing, file-label generation, network maintenance, data lines, vendor service contracts and installation, equipment, after-hours response pay, and debit-card processing. It did not tax initial or monthly membership, initial setup, balancing, status-indicator, identification-number regeneration, hot-card entries, or networking fees and credits.

Apply this to your situation

This page answers the general question as of 1988. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1988
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Texas classified an ATM network's charges one by one.

Taxable customer charges included per-transaction data processing, file-label generation, monthly network maintenance, data lines, vendor service contracts and installation, equipment, after-hours response pay, and debit-card processing. Initial and monthly membership, initial setup, ATM balancing, status indicators, identification-number regeneration, hot-card exception entries, and networking fees or credits were nontaxable.

Supplies and long-distance calls were taxable to the service provider in the situations stated. For customer-taxable charges, the provider could give suppliers a resale certificate. Federal credit unions could provide an exemption certificate. The Comptroller allowed collection on newly taxable items to begin July 1, 1988.

What this means for you

ATM and financial-network operators should classify and separately state each charge. Provider-consumed inputs, resale purchases, customer-taxable services, and exempt-entity purchases received different treatment.

Common questions

Are ATM service contracts and installation taxable? Yes. Are membership and initial setup fees taxable? No. Is per-transaction processing taxable? Yes. Can federal credit unions claim exemption? The letter says they may issue an exemption certificate.

Citations and references

The letter provides an itemized classification but cites no specific Tax Code section or Comptroller rule by number.

Source

Original ruling text

May 19, 1988

Dear *****:

Thank you for your recent letter asking about the taxability of charges through
your automatic teller machine network. The following is the list of charges
made to customers designated as taxable or nontaxable.

Initial Franchise/Membership fee. Not taxable.

Monthly membership fee. Not taxable.

Data Processing Center's initial set up fee. Not Taxable.

Data Processing Center's per transaction fee. Taxable.

File label generation (micro-computer). Taxable.

Monthly Network Maintenance fee (per ATM). Taxable.

Supplies for ATMs and Network forms. Taxable to the person providing the
service.

Data Line Charges (phone line to ATMs). Taxable.

ATM vendor service contracts. Taxable.

Vendor Installation fees. Taxable.

Equipment Cost. Taxable.

After hours response personnel pay. Taxable.

ATM balancing fee. Not taxable.

Monthly Status Indicator fee (per ATM + long distance phone calls). Not
taxable. Long distance telephone charges are taxable to the person providing
the service.

Debit card processing fee. Taxable.

Identification number re-generation fee. Not taxable.

Exception account entry fee (Hot Card). Not taxable.

Networking fees and networking credits. Not taxable.

These responses are based on the descriptions of the services/charges and
information provided. If any of the description of the activities or services
are incomplete or inaccurate, our answers may change.

In view of the complexity of this ATM service and the difficulty in determining
some of the areas of taxability, you will be allowed to begin collecting sales
tax on the taxable charges effective July 1, 1988 on any item that became
taxable as a result of the recent changes to the Tax Code.

On any charges marked "taxable", you may issue a resale certificate to your
supplier in lieu of tax since you will be collecting tax from customers. A
resale certificate may not be issued for items/charges marked as taxable to the
service provider. Of course, you must pay tax at the time of purchase for any
taxable item you purchase to provide those services where the charges are
marked as not taxable.

Federal Credit Unions qualify for an exemption from sales tax and may issue an
exemption certificate in lieu of tax for services as would any other exempt
entity purchasing goods or services for their own use.

Please feel free to contact me if you have additional questions. You may write
me, call toll free 1-800-252-5555 from anywhere in Texas or phone 512/463-4633.

Sincerely,

(Mrs.) Wanda Hutcheson
Tax Policy Division

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