Was a paid college scholarship and financial-aid matching service taxable when it generated student information from a computer database in California?

Plain-English summary

The paid scholarship and financial-aid matching service was taxable as an information service. Students paid a fee and received scholarship, grant, and other aid information generated from a computer database in California.

If the company performed activities that made it engaged in business in Texas under Rule 3.286(a)(1), it had to collect and remit Texas state and applicable local tax and obtain a sales-tax permit.

Common questions

Was the matching service taxable? Yes.

Did the California database location make the service exempt? The letter did not treat it as exempt.

When did collection duties apply? When the company was engaged in business in Texas under the cited rule.

Citations and references

• Comptroller Rules 3.286(a)(1) and 3.342(a)(2), (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/9007L1034A13

Original ruling text

July 31, 1990

Dear ****:

We received your letter questioning whether information about
scholarships, grants, etc., is taxable for Texas tax purposes.

According to your letter, you are starting a college scholar-
ship and financial aid matching service where students pay a
fee and receive information about financial aid. The infor-
mation is generated from a computer database located in
California.

The services you will be providing are taxable for Texas sales
and use tax purposes. See sections (a)(2) and (b) of the en-
closed Rule 3.342 relating to information services.

If your company is engaged in business in Texas, then your com-
pany will be required to collect and remit the Texas state tax
due plus any applicable local taxes due. Enclosed is a copy of
Rule 3.286 relating to seller's and purchaser's responsibilities.
Section (a)(1) of Rule 3.286 outlines the activities that cause
a retailer to be considered engaged in business in Texas. If
your company is performing any of these activities in Texas,
then you should notify this office so we can send you a tax per-
mit application.

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

If you have any questions you may call or write Tax Correspon-
dence. You may call toll free 1-800-252-5555, or our regular
number is 512/463-4600. My extension is 3-4658.

Sincerely,
Sherry Buckley
Tax Correspondence