How did Texas tax electronic transmission of income-tax returns to the IRS and monthly bookkeeping or profit-and-loss preparation?

Plain-English summary

Branch and franchise offices sent income-tax returns to an Austin office for electronic transmission to the IRS. Texas treated that transmission as taxable telecommunications service, with local tax determined by where the communication originated under the letter's historical local-option rules.

Service sold to locally owned franchise offices was a sale for resale, leaving the franchise office responsible for collecting and remitting tax to the extent its local jurisdictions taxed telecommunications.

Monthly posting of a customer's books and preparation of a profit-and-loss statement were not taxable, whether performed manually or by computer.

Common questions

Was electronic transmission to the IRS taxable? Yes, as telecommunications service.

Who handled tax on franchise-office transmissions? The franchise office, because the upstream transaction was for resale.

Was monthly bookkeeping or P&L preparation taxable? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0916B13

Original ruling text

November 16, 1988

Dear **:

This is to follow up our telephone conversation regarding local
tax on electronic transmission of income tax returns.

As I understand, your branch offices and the locally-owned
franchise offices send the income tax returns to your Austin
office to perform the electronic transmission to the IRS.

The electronic transmission of income tax returns to the IRS is
taxable as a telecommunication service. Telecommunication
services are exempt from the local sales and use tax unless the
city, county, or MTA/CTD repeals the exemption. Local taxes are
due based on the location where the communication originates.

The *** City sales tax is due on the transmission of income tax
returns for your branch offices. The MTA tax is not due.

The sale of the service to the franchise offices is a sale for
resale and the franchise office is responsible for collection and
remittance of the sales tax. If the city, county, or MTA/CTD in
which the franchise office is located has imposed the local tax on
telecommunication services, the local tax is due.

You also asked about taxability of charges to a customer for
monthly posting the customer's books and preparing a P & L. The
charge for this service is not taxable, whether performed manually
or by a computer.

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. My extension is 3-4666. The
regular number is 512/463-4600. You may write to Tax
Correspondence, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence