Was a separately stated computer-usage charge taxable when the computer supported a professional consulting study?

Plain-English summary

A petroleum consulting firm used computers to appraise mineral properties, evaluate assets, and prepare professional studies. Those professional services were nontaxable, and a separately stated computer-usage charge remained nontaxable when identified as reimbursement for computer time used to perform the professional service.

The description mattered because an unexplained computer-time charge could be mistaken for taxable timesharing. The result also changed when the customer supplied data and the provider merely reformatted or manipulated it, delivering a computer report rather than a professional study; that service was taxable.

Common questions

Did separately stating computer time make it taxable? No, when clearly identified as part of the professional service.

Why did the invoice description matter? It distinguished professional-service reimbursement from taxable timesharing.

When was the computer work taxable? When the finished product was a reformatted or manipulated-data report rather than a professional study.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8904L0945G05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

April 13, 1989

Dear *:

As we discussed, I've reviewed your letter of March 22, 1989,
concerning charges for computer usage when the computer is used
to provide a professional service.

I understand "A" provides consulting services for the petroleum
industry. "A" employs professionals with degrees in petroleum
engineering, geological engineering, civil engineering, mechanical
engineering, and chemical engineering.

"A" uses computers as a tool to appraise mineral properties,
evaluate mineral assets, and prepare studies relating to future
sources of energy supplies and the economics of the industry. At
times, "A's" customers request a separate bill for computer usage.
In all cases the computer is used strictly as an aid in performing
the professional service.

"A" is providing a professional service which is not taxable.
Separately stated charges for computer usage are not taxable. But
"A" should identify these charges as reimbursement for computer
time used to provide a professional service. If not, the charge
for computer time may be mistaken for timesharing, which is taxable.

Tax will be due on "A's" service if "A's" customers give "A" data,
and "A" uses a computer to reformat the data or runs a program to
manipulate the data and the finished product is not a professional
study, but a computer report of the reformatted data or the manip-
ulated data.

This opinion is based on the facts presented. If there are addi-
tional 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
512/463-4614. You may write me at the Taxability Section of the
Legal Services Division.

Sincerely,
Adina Whittemore
Taxability Section
Legal Services Division