Is a microfilm billing service taxable in Texas when the film is processed out of state and never returns?

Plain-English summary

A microfilm billing service described its business and asked whether it's taxable. The workflow: using a portable microfilm camera, it films clients' ledger cards in the clients' offices, sends the exposed film to an out-of-state processor, and uses the developed film to produce paper statements that are mailed to the clients' customers in various states. It charges the cost of the processed film plus a mark-up, and neither the original film nor a duplicate ever returns to Texas.

The Comptroller's holding:

• The charge to the customer is not taxable.
• But the provider owes Texas sales and use tax on the film it uses in performing the service (it is the consumer of that film).

What this means for you

Microfilm and outsourced billing services

If you run a service like this — capturing clients' records on film, processing out of state, and producing mailed statements — your service charge to the client is not taxable in Texas. Don't charge customers sales tax on it.

You pay tax on your film

Because your service is nontaxable, you are the consumer of the film (and similar supplies) you use — pay Texas sales or use tax on those items. Build that into your cost.

Common questions

Q: Is a microfilm billing service taxable in Texas?
A: No. The Comptroller held that the charge to the customer is not taxable.

Q: Do I owe tax on the film I use?
A: Yes. You owe Texas sales and use tax on the film you use to perform the service.

Q: Does it matter that the film is processed out of state and never returns?
A: Those facts are part of the described service the Comptroller found nontaxable; the provider still owes use tax on the film it consumes.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rules and statutes: The letter treats the microfilm billing service charge as nontaxable while making the provider liable for sales/use tax on the film it consumes, but does not cite a 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/8806L0903D09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 14, 1988

Dear ***:

We have received your letter regarding taxability of microfilm billing
service.

You describe your business activities as follows:

Using a portable microfilm camera, we microfilm clients' ledger cards
in their offices. We then send the exposed film to an out of state
processor. The developed film is used to produce paper statements
which then are mailed to our clients' customers in various states.
CORP A charges the cost of the processed film plus an appropriate
mark-up. The original film nor a duplicate ever returns to the state
of Texas.

Your charge to your customer is not taxable. You owe sales and use tax
on
the film that you use in performing the service.

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

If you have any questions or need more information, please call our
toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may write
me
at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Tom Soto
Tax Correspondence