Were a child-care provider's periodic referral-list fee and newsletter taxable when families received free referrals and some providers got the newsletter at no added charge?

Plain-English summary

The periodic $10 fee paid by child-care providers to remain on the active referral list was not subject to sales tax. Families received the referral names for free.

Some home-care providers received a newsletter at no additional charge, while other providers paid the same referral fee without receiving it. The newsletter therefore was distributed free rather than sold. The service did not collect tax on that distribution, but owed sales or use tax on items purchased to produce it.

If the business sold newsletter copies to people outside the referral list, it had to collect tax on the selling price. Cookbooks sold by the business were also taxable.

Common questions

Referral-list fee taxable? No.

Free newsletter taxable to the recipient? No.

Did the provider owe tax on production inputs? Yes.

Separately sold newsletters or cookbooks taxable? Yes.

Citations and references

• Comptroller Rule 3.342(b).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9007L1033A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
BOB BULLOCK AUSTIN, TX 78774
Comptroller

July 12, 1990

Dear *:

Thank you for your letter dated June 28, 1990, concerning the
child care referral service that you provide.

You indicated in our telephone conversation on July 11 that you
provide parents with the names of five child care providers that
might meet a family's day care needs. The referrals are free to
the family. Child care providers must pay a $10 fee periodically
to remain on your active referral list. This fee is not subject
to sales tax.

You also stated that "home care providers" will receive a news-
letter for no additional charge. The newsletters contain general
information that day care centers already receive from other
sources. Since both groups pay the same fee for your services
regardless of whether the group receives the newsletter or not,
the newsletter is not "sold" to the home care providers. Rather,
you are distributing the newsletter free of charge to certain groups.

You are not required to collect sales tax on the newsletters that
you distribute at no additional charge. You will owe sales or use
tax on all items purchased to produce the newsletter.

If you sell copies of the newsletter to persons other than the
child care providers that are included on your referral list, you
will be required to collect sales tax on the selling price of the
newsletters. Please review section (b) of the enclosed Rule 3.342
on information services. Also, you must collect sales tax on any
cookbooks that you sell.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change. Please
feel free to contact me if you have any additional questions. You
may write me, call toll free 1-800-252-5555 (ext. 3-4685) from
anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Correspondence