Are transaction-processing services that reformat a customer's own data into reports taxable data processing or a nontaxable information service in Texas?

Plain-English summary

A company that provides electronic transaction services asked the Comptroller about its Texas sales-and-use-tax responsibilities. The Comptroller addressed three things:

• Computer rentals are subject to sales and use tax, and the tax rate is set by the point of delivery to (the location of) the lessee.
• The company's core transaction-oriented electronic service — collecting its Texas customers' transactions and reformatting them into reports that only that customer can use — is not a nontaxable information service under Rule 3.342(a)(1). Instead, it is a taxable data processing service under Rule 3.330(a).
• The company's "locator" function — compiling statistical data (specifically a guide value placed on cars in a customer's inventory) and making it available to other customers — is a taxable information service under Rule 3.342(b). The guide itself is also a taxable information service.

The dividing line the Comptroller drew: reworking a customer's own data back into a report only that customer uses = data processing; compiling data and selling it to others = an information service. Both are taxable here, just under different rules.

What this means for you

Transaction-processing and reporting services

If you take a client's own transaction data and hand back reports only that client can use, Texas treats that as taxable data processing (Rule 3.330(a)) — not an exempt information service. Don't assume "we just give them information" means nontaxable.

Compiling data you resell to others

A service that gathers or compiles statistical data and furnishes it to multiple customers (like the car guide-value locator here) is a taxable information service under Rule 3.342. So is a published guide of such values.

Renting out computers

Computer rentals are taxable, and the applicable local tax rate follows the point of delivery to the lessee — where the equipment goes matters for which local rates apply.

Common questions

Q: Is reformatting a customer's data into reports taxable in Texas?
A: Yes. When the reports can be used only by that customer, the Comptroller treats the work as a taxable data processing service under Rule 3.330(a), not a nontaxable information service.

Q: What makes something a taxable information service instead?
A: Compiling statistical or other data and making it available to other customers — like the car-inventory "guide value" locator — is a taxable information service under Rule 3.342(b), as is the guide itself.

Q: Are computer rentals taxable, and at what rate?
A: Yes, they are taxable, and the rate is determined by the point of delivery to the lessee.

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. The data-processing and information-service rules have also been amended over the years.

Citations and references

Rules cited in the letter:

• 34 Tex. Admin. Code Rule 3.330(a) — data processing services (the taxable category the Comptroller placed the transaction-reformatting service in).
• 34 Tex. Admin. Code Rule 3.342 — information services; subsection (a)(1) is the information-service definition the reformatting service did not meet, and subsection (b) is the basis for taxing the locator/guide as an information service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8808L0909G10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 23, 1988

Dear **:

Thank you for your letter of August 11, 1988, concerning your com-
pany's Texas sales and use tax responsibilities.

Computer rentals are subject to sales and use tax. The tax rate
is determined based on the point of delivery to (the specific
location of) the lessee.

The transaction oriented electronic services that consists of the
collection of your Texas customers' transactions and reformatting
them into reports that only the customer can use is not taxable
as information services as defined and taxed under Rule 3.342 (a)
(1). These services are data processing services which are taxa-
ble services under Rule 3.330 (a).

The locator function which consists of the compilation of stati-
stical data, specifically a guide value placed on cars in a custo-
mer's inventory, made available to other customers is taxable as
an information service. See section (b) of Rule 3.342. The
guide is also a taxable information service.

This opinion is based on the information 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,
Eddie C. Washington
Tax Correspondence