When were a petroleum consultant's computer-assisted geophysical work, data entry, typing, and reel-to-reel copying taxable Texas services?

Plain-English summary

A petroleum consulting firm billed engineering, geological, technician, and secretarial time and asked whether switching from a typewriter to word-processing software or using a personal computer made those hourly charges taxable.

Computer use did not by itself create taxable data processing. Scientific analysis and interpretation of geophysical information, including third-party seismic data tailored to a customer's request, remained nontaxable when the computer merely facilitated professional work.

The result changed when the customer supplied already-analyzed information and the firm merely entered it, manipulated it, and produced a reformatted report. The entire charge for that job was taxable data processing under Rule 3.330.

Reel-to-reel copying or reproducing information from one medium to another was taxable as processing tangible personal property. The letter instructed the firm to classify each actual job by the work performed rather than by the employee's title or the use of a computer alone.

Common questions

Did using a computer make professional analysis taxable? No.

Was mere reformatting of customer data taxable? Yes.

Was copying information between media taxable? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.330
• 34 Tex. Admin. Code Rule 3.342(d)(2)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8910L0959B12

Original ruling text

October 2, 1989

Dear ***:

I am responding to your request to determine whether your company
provides information services or data processing services to your clients.

You state that ** is a petroleum consulting firm. You charge
your clients for professional fees (engineering and geological), technician
fees, and secretarial fees at an hourly rate. In addition, you bill your
client for any expenses incurred for their specific job.

Your primary concern is that recently the secretary changed from using a
typewriter to a word processing software program and the engineering technician
uses a personal computer to input/process data for evaluations. Each of these
fees is billed at an hourly rate. You asked:

1. Are the secretary's fees taxable when her time is spent typing on the
   personal computer?

2. Are the technician's fees taxable when her time is spent operating the
   personal computer?

These questions appear to deal primarily with data processing services.
If your company provides only data processing services (Please see Rule 3.330,
enclosed.), then, yes, the total charge for these services is taxable.
However, as the rule explains the use of the computer to perform other services
(for example, accounting) is not considered to be providing data processing
services and is therefore, not taxable.

This leads us to question whether you are providing information services
as defined and exempted in section (d)(2) of Rule 3.342, enclosed along with a
letter regarding these services, or merely manipulating data from one format to
another. The following paragraphs clarify the difference.

The use of a computer to facilitate the performance of other nontaxable
services or the application of the knowledge of the service provider is not
considered to be data processing. Therefore, when your company provides actual
scientific analysis and interpretation of the geophysical data for your
customer, your services are not taxable. This should apply when you buy
geological information from third party seismic companies, analyze this
information, and tailor the information report to your customer's specific
request. the charge for these services is not taxable, even though the
computer is utilized.

Another possibility for your services exists when your customer provides
the information and your company merely inputs the customer's data into a
computer, manipulates the data, and produces a report. In this instance, you
are simply reformatting information that is already analyzed. This total
charge is taxed as data processing services.

It may also be possible that you simply copy information from reel to
reel or copy (reproduce) from one media to another. This charge is taxed as
the processing of tangible personal property.

Please review these scenarios and rules. Categorize your jobs into a
specific area and add tax or do not tax according to the actual job being
performed.

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

You may also write to Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax )Policy Division
Tax Correspondence