Were remote-terminal services taxable data processing when the provider's main computer processed client data but output printed at the client's site?

Plain-English summary

The Comptroller treated two remote-terminal arrangements as taxable data processing and said the total charge for each was taxable.

In the first, the client used a remote terminal to update its database at the provider's main site; the main site generated financial reports and billings, which printed at the client's location. In the second, the client remotely maintained files, generated reports, and produced labels with little or no help from the main site. In both situations the provider supplied the software, while the client owned the data and reports.

Printing the output at the client's site did not change the characterization. The Comptroller directed the taxpayer to Rule 3.330(a) and (b).

What this means for you

Under this 1991 ruling, customer control, customer ownership of data and reports, and remote-site printing did not keep a service from being taxable data processing when the provider's computer and software performed the processing.

Common questions

Were both arrangements taxable? Yes. The Comptroller said their total charges were taxable.

Did it matter that reports printed at the customer's site? No, not under the facts described.

Did the client own the data and reports? Yes.

What rule did the Comptroller cite? Sections (a) and (b) of Rule 3.330 on data processing services.

Citations and references

• 34 Tex. Admin. Code § 3.330(a)-(b) (data processing services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1079B13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller February 27, 1991

Dear **:

Thank you for your recent letter concerning the taxability of two
services.

The situations described in your letter and conversation with ***
* are as follows:

Situation 1: The client is using a remote terminal to
access his data base at our site for the purpose of updating
his files. The Main site generates the financial reports and
billings which are printed out at the client's remote site.
All software is provided by the main site and data reports
are owned by the client.

Situation 2: The client is using a remote terminal into our
main computer to perform file maintenance, generate financial
reports, produce labels, etc., which are printed out at the
client's remote site with little or no assistance from the
main site. All software is provided by the main site. Data
and reports are owned by the client.

The services in both situations are data processing and their to-
tal charges are taxable. Please refer to sections (a) and (b) of
Rule 3.330 on data processing services, which is enclosed.

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

You may call me toll free at 1-800-252-5555, ext. 34697. The reg-
ular number is 512/463-4697. You may also write to Tax Adminis-
tration at the above address.

Sincerely,
Sandi Skaggs
Tax Administration Division