Are the data-processing services a jointly owned title plant buys taxable, and are the shareholders' cost-share reimbursements taxable too?

Plain-English summary

Several title insurance companies and agents jointly owned a title plant — a single county title plant maintained for the shareholders' shared benefit, which they use to examine title and issue title insurance. The joint plant contracted with a data processing company to index the county's daily real property filings (geographic and alphabetical indexing), delivering the indexes as microfiche to all shareholders each day and making the database available to certain online shareholders. The information stays owned by the joint plant's shareholders throughout; the data processing company just processes it for them.

The Comptroller's answer had two parts:

• The data-processing services are taxable to the title plant when purchased. These are taxable data processing services under Rule 3.330, and the joint plant (the buyer of the service) owes the tax at the time of purchase.

• The shareholders' cost-share reimbursements are not separately taxable. When the joint plant later charges each shareholder for its share of those costs, those reimbursement charges are not taxable. The plant may, however, include the sales tax it already paid as part of the reimbursement it collects from the shareholders.

What this means for you

Jointly owned or cost-sharing entities

If a shared entity buys a taxable service and then bills its members or owners for their portion of the cost, the tax is generally paid once — by the entity when it buys the service. Passing along each participant's share of that cost is not a second taxable sale, and the entity can build the tax it paid into what it collects back.

Title plants and data-processing buyers

Indexing and similar data processing of records is a taxable data processing service under Rule 3.330. Budget for tax at the point the plant purchases the service, not on each internal cost allocation to shareholders.

Common questions

Q: Are the data-processing services taxable?
A: Yes. They are taxable data processing services under Rule 3.330, and the title plant owes the tax when it purchases them.

Q: Are the shareholders taxed again when the plant charges them their share of the cost?
A: No. The reimbursement charges to shareholders are not separately taxable, though the plant may include the sales tax it already paid in those charges.

Q: Who owns the processed information?
A: The joint plant's shareholders own the information at all times; the data processing company merely processes it for them.

Q: Can I rely on this 1988 letter for my own arrangement?
A: Treat it as guidance only. It is based on the specific 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:

• 34 Tex. Admin. Code Rule 3.330 (data processing services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8809L0904A10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller September 30, 1988

Dear *:

Thank you for your letter asking if the services provided by a
data processing company in the following situation are taxable:

Joint Plant Participation: A title plant is owned by several
title insurance company/agent shareholders to maintain a
single county title plant for the joint benefit and use of
the shareholders. The shareholders use the title plant to
examine title and issue title insurance. The joint plant
owned by the shareholders has contracted with a data pro-
cessing company to provide certain services for the benefit
of the joint plant. These services include geographic in-
dexing of daily filings of county real property records, and
alphabetical indexing of certain daily filings. In pro-
cessing this information, the data processing company re-
ceives microfilm of daily real property filings, which
microfilm is owned by the joint plant. The data processing
company provides these indexes in the form of microfiche
delivered daily to all shareholders and makes the database
available to certain online shareholders. The information is
at all times owned by the joint plant shareholders; the data
processing company merely processes the information for the
benefit of the shareholders.

The data processing services are taxable to the title plant at the
time of purchase. Subsequent reimbursement charges to the
shareholders for their share of the costs are not taxable.
However, the sales tax may be included as part of the
reimbursement charges. Please refer to the enclosed Rule 3.330,
Data Processing Services.

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

Please feel free to contact me if you have any questions or need
more information. You may write to me or call 463-4666.

Sincerely,
Jo Ann Dieck
Tax Correspondence Division