Ezel / Tax Rulings / TX
TX 9012L1066E01 Sales and/or Use Tax (State,Local,MTA) 1990-12-13

Did Texas tax software delivered to an affiliated company outside Texas or data-processing access sold to its Texas affiliate?

Short answer: Out-of-state software delivery and related out-of-state services were not taxable; intercompany data processing was exempt only if the affiliates qualified under § 151.346.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

Two corporations in an affiliated group were involved: a service company in Alabama and a user company in Texas. A Texas supplier sold computer programs to the Alabama company, installed them there, and provided maintenance and training to both companies. Under a separate paid contract, the Alabama company let the Texas affiliate access the programs by modem.

The Comptroller said the supplier's software sale was not subject to Texas tax if the Alabama company took delivery outside Texas. Installation and maintenance performed outside Texas were likewise not subject to Texas tax, and separately stated software-instruction charges were not taxable in any event. The supplier's records needed to prove out-of-state delivery.

The Alabama company's data-processing service sold to the Texas affiliate was exempt only if the two corporations qualified for the intercorporate-services exemption in Texas Tax Code § 151.346. If they qualified, the Texas company had to give the Alabama company a properly completed exemption certificate.

What this means for you

Affiliation alone was not stated to settle the result. The companies needed to satisfy § 151.346 for the intercompany data-processing exemption, while the software sale turned on delivery outside Texas and supporting records.

Common questions

Was the software sale subject to Texas tax? Not if the buyer took delivery outside Texas.

What about installation and maintenance outside Texas? Those charges were not subject to Texas tax.

Was software training taxable? Separately stated instruction charges were not taxable.

Was modem access sold to the Texas affiliate exempt? Only if the corporations qualified under § 151.346 and the buyer provided a completed exemption certificate.

Citations and references

  • Tex. Tax Code § 151.346 (intercorporate services exemption)

Source

Original ruling text

December 13, 1990

Dear ****:

Mr. Tom Soto asked me to respond to your letter of November
29, 1990. He has reviewed my answer.

As I understand it, two corporations, "Services" and "User,"
are members of an affiliated group. Services' place of busi-
ness is in Alabama. User's place of business is in Texas.
"Supplier" is a Texas company that sells software and related
services.

Under one contract, Services purchases computer programs from
Supplier. Pursuant to its contract with Services, Supplier
will install the programs in Alabama, and provide maintenance
and training to both Services (in Alabama) and User (in Texas).

Under a separate contract and for a consideration, services
allows User to access via modem the various programs services
purchased from Supplier. Presumably, this contract also in-
cludes the purchase of maintenance and training services, to
be provided by Supplier (User does not have a separate contract
with Supplier for these services).

You ask which transaction, if either, is subject to Texas sales
or use tax.

First, the sale of computer programs from Supplier to Services
is not subject to Texas tax if Services takes delivery of the
programs out of state. Charges to install or maintain the pro-
gram outside Texas are likewise not subject to Texas tax.(Sepa-
rately stated charges for instruction on using the software are
not taxable, in any event). Supplier's records should substan-
tiate the fact that delivery takes place outside of Texas.

Second, the sale of data processing services from Services to
User is exempt if the corporations qualify under the intercor-
porate services exemption found in Tax Code Section 151.346. If
the corporations qualify under the statute, User should supply
Services with a properly completed exemption certificate in
lieu of tax.

This opinion is rendered based on the facts presented. If I
have made any incorrect statements regarding the facts of these
transactions, feel free to send me copies of the actual contracts
involved. If the contracts reveal facts now unknown to me that
should change this opinion, I would be happy to revise it.

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

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