Did the Texas Monthly publication-refund decision entitle an online database provider's customers to refunds of tax on search services?

Plain-English summary

An online database company sought a $336,597.19 refund on behalf of its customers under the Texas Monthly case. Texas customers used terminals to submit searches and order documents filed in public offices, sometimes printing results locally. The company had collected tax on the service since November 1988.

The Comptroller denied the claim. The company provided an information service rather than selling periodicals, books, newsletters, or other publications covered by the Texas Monthly refund treatment. Information services had been taxable since October 1, 1987, and the Texas Monthly case did not invalidate or address that tax.

The letter noted that some information services furnishing printed material could qualify for limited pre-October 1, 1987 refunds within the four-year limitations period. That did not help this company because it began collecting tax in November 1988.

What this means for you

The fact that customers could print search results did not turn the online database into a publication seller. The service's substance—electronic searches and retrieval—controlled.

Common questions

Did the customers qualify for the requested refund? No.

Why not? The company sold taxable information services, not covered publications.

Did Texas Monthly invalidate the tax on information services? No. The letter said that case did not address the information-services tax.

When did the letter say information services became taxable? October 1, 1987.

Was there a hearing option? Yes. The letter allowed a written request for a refund hearing within 30 days of its date.

Citations and references

• Texas Monthly, Inc. v. Bullock (named without a formal citation in the letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9012L1062F01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller December 27, 1990

Dear **:

I am writing in reply to your recent letter. I apologize for the delay.
As I understand it, you are requesting a refund of $336,597.19 on be-
half of your customers under the Texas Monthly, Inc. v. Bullock case.
But based on your description of the service you provide, it is clear
that your customers are not entitled to tax refunds under that case.

As a result of the U. S. Supreme Court decision in the Texas Monthly
case, the state will refund tax collected on sales of periodicals and
other publications, including books, newsletters and updates to books.
The sales tax law was changed effective August 28, 1989, so any tax
paid after that date is not refundable. Also, the statute of limita-
tions bars refund of tax paid earlier than four years prior to the date
of the refund request. In the case of information services that fur-
nish their material in printed form, refunds are limited to periods
within the four year statute of limitations, but before October 1, 1987,
when information services became taxable.

In your letter, you describe your service as follows:

CORP ABC is an Atlanta-based company which operates an online
computerized database service which is used by customers lo-
cated within the State of Texas. Our customers use personal
computers and other terminals to enter search requests into
the online system and to electronically place orders for the
retrieval of certain documents filed in public offices.
Search results are often printed by the customer on printers
attached to their terminal. Since November 1986, CORP ABC has
collected sales tax on these services.

Based on these facts, it is clear that you are not selling periodicals
or other publications for which refunds are being granted under the
Texas Monthly case. Rather, you are providing an information service.
Information services have been taxable since October 1, 1987. The
Texas Monthly case did not invalidate, nor even address, the law that
imposes tax on information services.

Even though some information services that furnish their material in
printed form may get refunds for tax collected before October 1, 1987
(but not barred by the statute of limitations), this does not apply to
your company because you state that you began collecting tax in Novem-
ber 1988.

You lawfully collected and remitted tax on your services, and the Texas
Monthly case does not extend to the services you provide. You may feel
free to send a copy of this opinion to any customer who may, citing that
case, request a refund from you.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. You are entitled to a refund
hearing before an Agency Administrative Law Judge. If you would like
to request a hearing, please send your written request within thirty
(30) days of the date of this latter to the address shown below.

Comptroller of Public Accounts
Revenue Accounting Division
P.O. Box 13528
Austin, TX 78711-3528

If you have further questions, feel free to write or call me at
1-800-531-5441, ext. 3-3889. The regular number is (512) 463-3889.

Sincerely,
John Christian
Taxability Section
Legal Services Division