Which tax-preparation, electronic-filing, return-review, and refund-anticipation-loan charges were taxable in Texas?

Plain-English summary

A tax-return preparer charged the same $45 return-preparation fee whether it filed the return electronically or only prepared it. The Comptroller said the return-preparation fee was not taxable, and no taxable amount arose when electronic filing was genuinely provided at no charge. The invoice had to state the preparation amount and identify electronic filing as “no charge.”

Electronic filing by itself was taxable. When the business merely filed a return prepared elsewhere, its $25 electronic-filing fee was subject to sales tax.

For refund-anticipation loans, the separately stated $20 fee to review a return prepared elsewhere was not taxable, and prepaid interest was not taxable. The letter said those two charges were connected with providing the loan.

What this means for you

The result depended on what the customer paid for and how the invoice documented the charges. Providing electronic filing without an added charge as part of nontaxable return preparation produced no electronic-filing tax base, while charging for electronic filing alone did.

Common questions

Was income-tax return preparation taxable? No.

Was electronic filing taxable? Yes when charged as a standalone service. There was no tax base when it was provided at no charge with return preparation and documented that way.

Was the return-review fee for a refund-anticipation loan taxable? No.

Was prepaid interest taxable? No.

Did the charges need to be separately stated? Yes. The letter required the items to be separately stated and identified on the invoice.

Citations and references

The letter did not cite a statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9101L1068A13

Original ruling text

January 22, 1991

Dear ***:

Thank you for your follow-up letter clarifying your transactions involving
electronic filing of income tax returns and the service of income tax
return preparation.

You stated in your initial letter that you provide income tax return
preparation and charge for electronic filing of income tax returns. However,
your second letter clarified that you provide electronic filing free of charge
to your clients when you actually prepare the income tax return for them. For
example, the charge for the preparation of a 1040 with 2 W-2's is $45.00. The
same fee is charged this client whether you submit the return electronically to
the IRS or whether you only prepare the return.

I explained to you in our earlier telephone conversation that the $45.00
return preparation fee is not taxed. I also stated there is no tax base when
you do not charge for electronic filing, and I explained that you must document
each invoice with an amount for the return preparation and a statement similar
to "electronic filing no charge."

Electronic filing in and of itself is taxable; therefore, you must charge
tax to your customers when you merely provide electronic filing of the return.
This invoice will show the $25.00 electronic return filing fee plus applicable
sales tax.

You added additional information and asked additional questions in your
second letter. You explained that you will also provide refund anticipation
loans. These transactions have charges for return review on those that are
prepared elsewhere ($20.00), an electronic filing fee of $25.00 for returns
prepared elsewhere, and a charge for prepaid interest on all refund
anticipation loans. You questioned the taxability of these charges and
explained that each is a separate line item on the invoice.

The $25.00 electronic filing fee is taxed; the $20.00 return review fee
is not taxed; the prepaid interest is not taxed. Again, these items must be
separately stated and identified on the invoice. The return review fee and the
prepaid interest are connected with the provision of the refund anticipation
loan.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division