Were a state-university library's lost-book charges taxable, and how were online searches and photocopies treated?

Plain-English summary

The Comptroller said a state-university library should not tax charges for lost books. Texas treated the payment as damages rather than the purchase of a book.

The university's own purchase exemption did not remove its duty to collect tax when it sold taxable items or services. The letter identified online searching as taxable information service effective October 1, 1987 and said photocopying was taxable.

Common questions

Was a lost-book charge taxable? No. It was treated as damages.

Was online searching taxable? Yes under the letter, as electronic data retrieval or research.

Was photocopying taxable? 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/8901L0918G13

Original ruling text

Comptroller of Public Accounts
State of Texas
Austin, Texas 78774

Bob Bullock
Comptroller January 18, 1989

Dear ****:

Mr. Bullock asked me to respond to your recent letter. I hope I can
clear up sales tax as it applies to libraries.

State universities and all their departments are exempt from sales tax on
items purchased for their own use. However, Attorney General Mattox has
recently ruled that a university falls under the collection responsibilities
prescribed in the sales tax law.

Your colleague was correctly told that he should collect and remit tax.
How the library spends the money has no bearing on whether tax should be
collected from the person buying the taxable item. The sales tax is collected
and paid to the State by the last seller in the chain. The sellers further up
the line don't collect tax to insure there's no multiple taxation.

I believe there's some confusion as to what goods and services are
taxable. As I understand it, "on-line searching" is electronic data retrieval
or research. The law defines this as an information service, which became
taxable October 1, 1987. Photocopying has been subject to the sales tax for
many years. But, charges for lost books shouldn't be taxed. We treat this
charge as more like a payment of damages than the purchase of a book, and we
don't consider it taxable.

We will soon distribute a notice to the fiscal officers of all state
agencies concerning sales tax reporting procedures. If you have further
questions about what's taxable please call our Tax Assistance people, toll
free, at 1-800-252-5555.

Sincerely,
Dan Pearson
Deputy Comptroller