Ezel / Tax Rulings / TX
TX 9011L1057A01 Sales and/or Use Tax (State,Local,MTA) 1990-11-13

When were Texas computer hardware and software service contracts taxable?

Short answer: Hardware contracts were taxable regardless of who sold the equipment; software contracts were taxable only for software the service provider originally sold, with contract-programming services exempt.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

The Comptroller explained the then-current sales-tax treatment of computer hardware and software service contracts.

Hardware service contracts were taxable whether or not the service provider originally sold the hardware.

Software service contracts were taxable only when the provider serviced software it had originally sold to the customer. Maintenance or service for software sold by someone else was not taxable.

Contract programming was also nontaxable when the provider wrote a specific program and the client held the rights. Later modifications, upgrades, maintenance, technical support, and other services for that client-owned program were likewise nontaxable.

What this means for you

The letter made original seller status important for software but not for hardware. It also separated client-owned custom programming from taxable software service contracts.

Common questions

Was a hardware maintenance contract taxable if another vendor sold the hardware? Yes.

Was service on third-party software taxable? No under this letter.

Was service on software the provider originally sold taxable? Yes.

Were upgrades to a client-owned custom program taxable? No.

Citations and references

  • 34 Tex. Admin. Code Rule 3.308, including subsection (b)(4) (computer hardware and software)
  • 34 Tex. Admin. Code Rule 3.292 (repair and maintenance of tangible personal property)

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller November 13, 1990

Dear ** :

I am responding to your letter of November 2, 1990, wherein you
have requested current rules and regulations regarding the sales/
use taxation of service contracts. This would include service
contracts on both hardware and software.

As you requested I am enclosing a copy of Rule 3.308 on computer
hardware and software sales and services. I am also sending you
a copy of Rule 3.292 concerning repair, remodeling, maintenance
and restoration of tangible personal property.

In general, service contracts are taxable on both computer hard-
ware and software. There is one major difference between hardware
and software that I would like to point out in this letter. Ser-
vice contracts are taxable on hardware whether or not you origin-
ally sold the hardware for which the service is being offered.

Service contracts on software are taxable only when you are pro-
viding the service contract on software that you originally sold
to the customer. If you are providing maintenance or service con-
tracts on software that you did not sell, your services are not
taxable.

There is one other instance where software service contracts are
not taxable. If you wrote a specific program for a client for
which the client holds the rights (contract programming), your
services for writing the program are not taxable. See Rule 3.308
(b.)(4). Furthermore, any services you provide in regard to this
program in the future are also not taxable. This would include
modifications, upgrades, maintenance, technical support, etc.

If you have any further questions, please contact Tax Correspon-
dence. You may write to the above address or call toll free
1-800-252-5555.

Sincerely,
Brad Gabbart
Tax Correspondence

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