How did Texas tax shared title-plant costs, management services, and information sold to shareholders and nonshareholders?

Plain-English summary

Two corporations operated county title plants for groups of title-company or title-agent shareholders. One corporation would build and maintain the other corporation's county database, charge for initial production and ongoing maintenance, and have no ownership interest in the data.

The Comptroller said a title plant maintained for the joint benefit of its shareholders had to pay tax on taxable items purchased to build, maintain, and update the plant. Reimbursements billed to shareholders for their shares of those costs were not taxable, although the plant could include the sales tax it paid in those reimbursements.

The result changed when information went to someone who was not a shareholder of that title plant. The plant had to collect tax on taxable information services sold to nonshareholders, including a shareholder of one plant obtaining taxable information from the other plant in which it held no shares.

For the corporation acting as manager of a database it did not own, the letter said it could buy taxable information services and tangible personal property for resale to the database owner under a resale certificate. It then had to collect tax on its total charge for producing and maintaining the database, less separately stated nontaxable charges, and on later taxable services such as data processing.

What this means for you

The letter distinguished genuine owner cost-sharing from sales of taxable information or management services. Being a shareholder in one title plant did not make charges from another title plant nontaxable.

Charges paid to a governmental agency for information under open-records laws were not taxable. If the manager separately stated that amount when billing the database owner, it could exclude the governmental charge from the tax base.

Common questions

Were shareholder reimbursements for maintaining their jointly owned title plant taxable? No.

Did the title plant owe tax on what it purchased? Yes, on taxable items used to build, maintain, and update the plant.

Were taxable information services sold to nonshareholders taxable? Yes.

Could the database manager use a resale certificate? The letter said it could use one for taxable information services and tangible personal property bought for resale to the database owner.

Were government open-records charges taxable? No, and a separately stated government charge could be excluded from the manager's taxable billing base.

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/9101L1094A11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller January 7, 1991

Dear *****:

Thank you for your letter concerning the sales and use tax
liabilities of group title plants.

You stated in your letter that **(CORPORATION A) owns the
COUNTY B county joint title plant, ** (CORPORATION B) owns
the COUNTY A joint title plant. CORPORATION A will begin
construction of a COUNTY B county database on July 1, 1991, and on
February 1, 1992, CORPORATION A will begin production of a COUNTY A
county
database for the benefit of CORPORATION B shareholders.
CORPORATION B will be charged a fair market value for the production of the
plant. CORPORATION A will have no ownership of the data produced. As
clarified in our
telephone conversation, CORPORATION A will set up and maintain the
COUNTY A county database on a current basis for CORPORATION B.
CORPORATION A will charge CORPORATION B for the initial production as well as
for maintaining a current database. The charges to CORPORATION B will include
the expenses incurred by CORPORATION A in performing this service, e.g.
purchase of information, employee time, etc. CORPORATION B will, in turn, bill
its shareholders.

As I understand, a title plant is owned by several title
companies/agent shareholders to maintain a county title plant for
the joint benefit and use of the shareholders. An operating
agreement provides for each shareholder to equally share the cost
of maintaining the joint plant

A title plant built and maintained for the joint benefit and use
of its shareholders must pay tax on all taxable items it purchases
to build, maintain, and update information in the title plant.
Subsequent reimbursement charges to the plant's shareholders for
their share of the costs are not taxable. However, the sales tax
paid on purchases may be included as part of the reimbursement
charges to the shareholders.

A title plant that allows other parties who are not shareholders
of the plant to obtain information from the title plant must
collect the tax on all taxable information services sold to the
other parties.

In your situation CORPORATION A and CORPORATION B must pay tax on
taxable items each purchases for their respective title plants. The
reimbursement
costs that CORPORATION A and CORPORATION B bills to its respective
shareholders for the respective title plants are not taxable.

It appears that CORPORATION A will be a management company for the
COUNTY A County database (plant) that CORPORATION A produces, but
does not
own. CORPORATION A may be purchasing taxable and nontaxable items
that it
will sell to CORPORATION B to build the database plant.
CORPORATION A may purchase taxable information services and tangible personal
property that
it will sell to CORPORATION B tax free under a resale certificate.
When CORPORATION A purchases information from a governmental agency under the
open
records laws, the amount charged by the agency is not taxable. If
CORPORATION A separates the amount paid to the government agency
from the
amount it charges CORPORATION B for obtaining the information, the
amount
paid to the government agency can be excluded from the tax base.
CORPORATION A would collect tax on the total charge to CORPORATION
B for producing and maintaining the database (less any separately-stated
nontaxable
charges) and any subsequent taxable services such as data
processing. The reimbursement costs that CORPORATION B bills to
its
shareholders for the COUNTY A database (plant) that CORPORATION A
produces and maintains but does not own, are not taxable.

An entity that is a shareholder in both CORPORATION A and
CORPORATION B title plants will be charged for reimbursement of expense by both
title
plants. Reimbursement charges billed by CORPORATION A and by
CORPORATION B to their respective shareholders are not taxable. If an
CORPORATION A shareholder who is not a shareholder in CORPORATION B obtains
information from the CORPORATION B title plant (whether from CORPORATION B or
from CORPORATION A who manages the plant), sales tax must be collected on the
charge for any taxable information sold to the shareholder.

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

If you have any questions or need additional information, you may
call me at 463-4666. You may write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Administration Division