Was a 10% handling charge added to a third party's taxable seismic-tape copying cost itself taxable?

Plain-English summary

The geophysical provider licensed seismic data and sometimes hired a third party to copy it onto magnetic tape. The copying company charged Texas sales tax, which the provider paid.

The provider passed through the copying and shipping costs and added a 10% handling charge for its own time and effort. The Comptroller said that handling add-on was part of the provider's nontaxable service and was not taxable.

Common questions

Was third-party tape copying taxable? Yes to the geophysical provider.

Was the 10% handling add-on taxable? No.

Did the provider pay the copying vendor's tax? Yes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8810L0903A07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 18, 1988

Dear ****:

Thank you for your recent inquiry regarding the taxability of copies of
seismic data for the petroleum and minerals industries.

Situation: *'s primary business is providing and interpreting
geophysical data for the petroleum and minerals industries.

* either licenses for use (1) self-owned seismic data or (2) seismic
data owned by major or independent oil companies (*** serves as a broker in
the latter situation).

In the process of business you are asked to furnish magnetic tape copies
of the above mentioned seismic data. In some cases * sends the tapes to a
third party for copying. The third party charges *** for Texas sales tax
and you pay it. You then invoice your client for the actual charges paid to
the outside company along with actual shipping charges and a (10%) ten percent
handling charge (to recoup your time and effort).

You understand from your discussions with our office that this service is
not taxable. You are requesting a written determination that the above
mentioned (10%) ten percent add-on for handling is not subject to Texas sales
tax.

Response: You are correct in paying tax to the third party for the
copies. The ten (10%) percent handling charge is part of your service and is
not taxable.

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
1-800-252-5555. The regular number is 512/463-4600. You may write me at
Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Tom Soto
Tax Correspondence