Is a Texas money-order service taxable, and who pays tax on the machines, forms, telephone equipment, and service used to provide it?

Plain-English summary

Texas treated the sale of money orders as a nontaxable service, so the customer buying the money order did not owe sales tax.

The provider was the consumer of taxable items and services used to perform that nontaxable service. The letter specifically lists money-order dispensing machines, blank forms, telephone equipment, and telephone service as purchases on which the provider owed sales or use tax.

The Comptroller needed the planned supermarket and convenience-store contract to decide whether those retailers would act as the provider's agents or contract with it to serve their customers. Either way, the final consumer's money-order purchase remained nontaxable and the service provider owed tax on its taxable inputs.

What this means for you

Money-order service providers

Do not charge the customer sales tax on the money order under this letter. Instead, pay tax on taxable equipment, supplies, and services consumed in operating the service.

Retail hosts

The contract may determine whether the store acts as agent or customer, but the letter does not decide that issue without reviewing the agreement.

Common questions

Q: Is the money order taxable to the purchaser?
A: No.

Q: Who pays tax on the dispensing machine and blank forms?
A: The provider of the nontaxable service.

Q: Does the letter decide the supermarket's role?
A: No. The Comptroller said the contract was needed to determine whether the store was an agent or contracting customer.

Q: Does the letter cite a numbered provision?
A: No.

Citations and references

The letter states the service-provider rule but cites no specific Tax Code section or Comptroller rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8806L0878B14

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 2, 1988

Dear ***:

Thank you for your letter concerning the taxability of your money
order service.

The sale of money orders is a nontaxable service. As the provider
of a nontaxable service, you must pay sales or use tax on all taxa-
ble items, including taxable services, used to provide the service.
This includes the money order dispensing machines, the blank money
order forms, and the telephone equipment and service.

I will need to see a copy of the contract you plan to use to set up
money order machines in supermarkets and convenience stores. Based
on the information provided in your letter, it appears that you may
be considered the seller of the money orders to the final consumer.
The supermarkets may be either acting as your agents in providing the
service or contracting with you to provide a nontaxable service for
the supermarkets' customers.

In either case, the final consumer or purchaser of the money order
does not owe sales tax when he pays for the money order. As I said
previously, the provider of the service owes tax on all taxable items
used to provide the service.

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 any additional questions.
You may write me, call toll-free 1-800-531-5441 from anywhere in the
United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Policy Division