Ezel / Tax Rulings / TX
TX 9008L1039A01 Sales and/or Use Tax (State,Local,MTA) 1990-08-22

Were software development and maintenance receipts taxable when one corporation occasionally hired the software seller's employees as independent subcontractors?

Short answer: No, under the stated arrangement. The service corporation did not have to collect tax from its customer or pay tax to the independent subcontractor when the hired programmer had developed the program for the software-owning corporation and the program rights remained with that corporation.

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Corporation A provided development, modification, and maintenance services for software sold by Corporation B. On occasional projects, Corporation A hired Corporation B's employees as independent subcontractors.

The Comptroller said Corporation A did not have to collect tax from its customer or pay tax to the subcontractor under those circumstances. The programmer could be hired tax-free to service the program when that person had developed it as Corporation B's employee or contract programmer and Corporation B retained the program rights under the development contract.

Common questions

Did Corporation A collect tax from its customer? No, under the facts stated.

Did it pay tax to the independent subcontractor? No.

What fact about the software rights mattered? The program rights rested with Corporation B.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller August 22, 1990

Dear **:

Thank you for your July 18, 1990, letter to ***.
He asked me to do the research and respond to your question.

CORPORATION A was formed for the purpose of providing devel-
opment, modification, and maintenance services on software
sold by CORBORATION B.

You ask whether the receipts from such services are taxable
when CORPORATION A on unique occasions, hires CORPORATION B
employees acting as independent subcontractors. CORPORATION
A does not have to collect tax from its customer nor pay tax
to the independent subcontractor under those circumstances.

If the person hired developed the program as an employee or
contract programmer for CORPORATION B where under the terms
of the contract the rights to the program rested with CORPO-
RATION B, that employee or contract programmer may he hired
as an independent subcontractor to service the program with-
out tax being due.

If you have other questions or need more information please
call or write. The toll-free number is 1-800-531-5441; my
extension is 3-4675. The regular number is (512)463-4675.

Sincerely,
Tom Soto
Taxability,
Legal Services Division

Get today's answer for your situation

You just read a 1990 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.