Ezel / Tax Rulings / TX
TX 9104L1106G06 Sales and/or Use Tax (State,Local,MTA) 1991-04-23

Was destroying an electronic chip layer by layer to diagram its pathways and prepare a client report subject to Texas sales tax?

Short answer: No. The chip-analysis and reporting work was a nontaxable service, but the provider owed Texas sales or use tax on every item used to perform it.

Apply this to your situation

This page answers the general question as of 1991. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1991
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

The business dismantled electronic chips layer by layer, destroying each chip in the process, to diagram its electrical pathways. It prepared reports for clients investigating possible patent infringement or why a chip failed.

The Comptroller classified the work as a nontaxable service. The provider nevertheless had to pay Texas sales or use tax on every item used to perform that service.

What this means for you

The customer was buying the analysis and report under the stated facts, not a taxable sale of the destroyed chip. Nontaxable service status did not exempt the provider's supplies or other inputs.

Common questions

Was the chip-analysis service taxable? No.

Did it matter that the chip was destroyed? The letter included that fact and still treated the service as nontaxable.

Who owed tax on items used in the analysis? The service provider.

Citations and references

The letter did not cite a specific statute or rule.

Source

Original ruling text

April 23, 1991

Dear **:

Thank you for your letter concerning the services provided by your
client, COMPANY ABC.

You stated that electronic chips are taken apart layer by layer in
order to prepare a diagram of the electrical pathways. The chip
is destroyed in the process. Reports describing a chip are pre-
pared for customers for various reasons. The purpose may be to
find patent infringements by competitors or to determine the
reason that a chip did not work.

Your client is providing a nontaxable service for its customers.
Providers of nontaxable services are required to pay Texas sales
or use tax on all items used to provide the service.

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

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555 from
anywhere in the United States or phone 512 463-4600.

Sincerely,

Julie Pesl
Tax Administration Division

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