How did Texas tax freight-bill auditing combined with computerized or manual accounts-payable processing?

Plain-English summary

Texas separated freight-bill auditing from accounts-payable processing. Auditing was nontaxable whether done manually or by computer. Accounts-payable processing was taxable data processing when a computer was used, but nontaxable when performed manually.

The taxable accounts-payable service represented 15% of the combined charge. Under Rule 3.330's mixed-service rule, a lump-sum bill made the entire amount taxable because the taxable part exceeded 5%. Separately stating the services allowed tax to apply only to accounts-payable processing.

What this means for you

Freight-audit businesses should identify whether accounts-payable work uses a computer and separately state taxable processing from nontaxable auditing. Under this letter, a taxable component over 5% contaminated a lump-sum charge.

Common questions

Is freight auditing taxable? No. Is computerized accounts-payable processing taxable? Yes. What about manual processing? It was nontaxable. Can separate billing help? Yes; tax then applied only to the taxable portion.

Citations and references

• Rule 3.330, including section (d)(2)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8805L0903A04

Original ruling text

May 27, 1988

Dear ***:

I am responding to your letter requesting a determination on the taxability
of freight bill auditing services.

You stated that your company reviews freight bills, batches these bills,
and pays the various carriers once a week out of a common escrow account.
All of these activities are performed by you on behalf of your customers
for a fee. You also stated you have been told these services are taxable
and these services are not taxable.

The service you describe is an accounts payable service. Accounts payable
processing is taxable as data processing, if the accounts payable are
processed through the use of a computer. Please see Rule 3.330, enclosed.

If the services are performed manually, without the use of a computer,
then you are not performing data processing services. The charge for
"manual" accounts payable is not taxable.

The auditing procedure is not a taxable service whether you perform the
audit manually or through the use of a computer. You stated the line item
charge for the accounts payable service is 15% of the total charge; the
balance is derived from the auditing process. If you bill your customer
a lump-sum charge for all services, then the entire amount is taxable
because the accounts payable service exceeds 5% of the total charge. See
section (d)(2) of the rule. You may separately state the taxable
(accounts payable) charge from the nontaxable (auditing process) charge
and add tax only on the taxable portion.

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

Sincerely,

Tax Policy Division