Were computer-based payroll services taxable when they included printing checks, filing payroll reports, withholding taxes, and paying payroll taxes?

Plain-English summary

Payroll services performed by computer were taxable data processing. The taxable charge included printing checks, filing payroll reports, withholding payroll taxes, and paying those taxes.

A customer already recognized as a Texas sales-tax-exempt organization could provide a properly completed exemption certificate instead of paying tax. An organization that had not received exempt status first had to apply to the Comptroller.

The Comptroller also sent the service provider a tax-permit application.

Common questions

Were computer payroll services taxable? Yes.

Were check printing and payroll reports included? Yes.

Could an exempt organization avoid tax? Yes, with approved exempt status and a properly completed exemption certificate.

Citations and references

• Comptroller Rules 3.287, 3.322, and 3.330(a).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1039B10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

August 14, 1990

Dear **:

We received your letter questioning the taxability of your payroll
services.

When you use a computer to provide data processing services, which
includes payroll services, you are providing taxable services.
Therefore, your charge for your payroll services including print-
ing checks, filing the appropriate payroll reports, and withholding
and paying payroll taxes are taxable if performed by means of a
computer. See section (a) of the enclosed Rule 3.330 relating to
data processing services.

If you provide taxable services for an organization that has been
granted exempt organization status for Texas sales and use tax pur-
poses, then the exempt organization must issue you a properly com-
pleted exemption certificate in lieu of the tax. Enclosed is a
copy of Rule 3.287 relating to exemption certificates. Also en-
closed is Rule 3.322 relating to exempt organizations. The ORGANI-
ZATION ABC must apply to this office for an exempt status if they
have not already requested an exemption.

I have sent a tax permit application under separate cover.

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 you may call or write Tax Correspondence.
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