Were installation, software, and communication charges taxable when sold with a Texas information service?

Plain-English summary

A provider of information services asked about three customer charges: a one-time communication-equipment installation charge, a monthly software charge, and a standardized monthly communication charge. The Comptroller treated all three as part of the taxable information service.

The installation charge was taxable as part of the service. The monthly software charge was also taxable as part of the service, as was the monthly charge covering communication costs. Itemizing the charges did not change the result; the letter said they were taxable whether presented separately or in one lump sum.

The provider could purchase the communication equipment or software tax-free only if care, custody, and control of that property transferred to its Texas customer. STAR now displays an alert directing readers to Rule 3.285 for specific guidance about care, custody, and control when taxable services are provided.

What this means for you

Separately stating a cost does not necessarily remove it from the taxable sales price of an information service. This letter treated installation, software, and communications as components of the service. Its resale treatment depended on transferring care, custody, and control to the customer, and the later STAR alert points readers to Rule 3.285 for specific guidance.

Common questions

Was the one-time equipment-installation charge taxable? Yes, as part of the information service.

Was the monthly software charge taxable? Yes, as part of the information service.

Was the standardized monthly communication charge taxable? Yes.

Did itemized billing change the result? No. The three charges were taxable whether separately stated or lumped together.

Could the provider buy the equipment and software tax-free? Only if care, custody, and control transferred to the Texas customer.

Citations and references

• 34 Tex. Admin. Code § 3.285 (resale certificates and sales for resale; cited in the STAR alert as amended November 1, 2017)
• 34 Tex. Admin. Code § 3.342 (information services)
• July 1990 Sales Tax Bulletin concerning information services (enclosed with the original response)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1074G10

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller February 6, 1991

Dear **:

This is response to your request for a written ruling on the sales
tax collection responsibilities for the products and services pro-
vided your client to its customers in Texas. Your client provides
information services.

You have asked whether the following charges are subject to sales
tax when sold in conjunction with an information service.

1. A one-time charge for the installation of communication equip-
   ment.

Answer: Information which is gathered, maintained, or compiled and
made available by the provider of the information service to the
public or to a specific segment of industry for a consideration is
subject to tax. The total charge for information services whether
by subscription or on an as-needed basis is taxable. The one-time
charge for the installation of the communication equipment is taxa-
ble as part of the information service.

Your client may purchase the communication equipment tax-free only
if care, custody, and control of the equipment is transferred to
its Texas customers.

2. A monthly charge for the software necessary to operate and inter-
   pret the information received from the out -of- state data transmis-
   sion.

Answer: The monthly charge for the software is considered part of
the information service and is subject to tax. See answer to (1) a-
bove. The software may be purchased tax free only if care, custody,
and control is transferred to the customer.

3. A standard monthly service charge to cover the communications
   cost. This service charge is standardized and is not based on usage.

Answer: A monthly service charge to lover the cost of communications
would be taxable as part of the total charge for providing the infor-
mation service.

4. Please provide a ruling as to whether the sales tax responsibili-
   ty would differ if the above charges were presented in a lump-sum a-
   mount versus an itemized billing.

Answer: The charges identified in questions 1, 2, and 3 would be tax-
able as part of the information services whether billed in a lump-sum
amount or itemized.

I have enclosed a copy of Rule 3.342 Information Services and our
July 1990 Sales Tax Bulletin, concerning the same subject, for your
information.

This opinion is based on the facts presented. If there are differ-
ent or additional facts, this opinion could change.

If you have further questions or need more information feel free to
call me at 512/463-4502, or 1-800-531-5441 from outside Austin. You
may write me at Tax Administration Division. [FAX (512) 475-0900)

Sincerely,
Gilbert Zamora
Tax Administration Division