How did Texas tax software delivery, installation, support, programming, and hardware sales when bank customers were located inside or outside Texas?
Apply this to your situation
This page answers the general question as of 1991. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
The company developed, installed, and supported banking software nationwide. Texas tax depended on delivery location, customer location, and who retained the program rights.
- Software and installation were not subject to Texas tax when the customer took delivery outside Texas. Installation in Texas was taxable when the company installed software it sold.
- Telephone support for out-of-state customers was not taxed if their location was documented. Support for Texas customers was taxable maintenance of computer software.
- Contract programming was nontaxable when the service designed a program for one client's needs and the client retained the legal rights.
- If the programmer retained the rights, the transaction was a taxable sale of custom software. Canned software was also taxable.
- Hardware or software shipped directly outside Texas was not taxed; delivery to a Texas customer was taxable.
What this means for you
The letter used both destination and ownership of the software rights. Calling work custom did not make it nontaxable if the programmer retained the program; the client had to retain the legal rights for contract-programming treatment.
Common questions
Was Texas installation of the seller's software taxable? Yes.
Was support for an out-of-state bank taxable? No, with documentation of the customer's location.
Was client-owned contract programming taxable? No.
Were custom programs taxable when the developer retained the rights? Yes.
Citations and references
The letter said it enclosed the applicable rule but did not identify the rule number in the published text.
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/9108L1127E01
Original ruling text
August 20, 1991
Dear **:
Thank you for your recent letter, concerning taxability of
various services you provided. As I understand it, your
company develops, installs and supports computer software
at banks all over the country, including Texas. You install
the software at the bank's location and provide telephone
support from your office in **. I have restated
your list of questions below, followed by answers:
- Installation of software at bank's location outside of Texas.
Answer: No Texas tax is due on the sale and installation of
software if the customer takes delivery outside of Texas.
- Installation of software at bank's location inside of Texas.
Answer: Taxable, assuming you are installing software sold
by you (and not software sold by a third party).
- Telephone support from *'s office in ** to
banks outside of Texas.
Answer: No Texas tax is due on this service when it is
provided to customers located outside of Texas. Be sure to
document the customer's location, in the event of audit.
- Telephone support from **'s office in **** to
banks inside Texas.
Answer: Taxable. This is considered maintenance of
tangible personal property (Computer software).
- Programming done at bank's location outside of Texas.
Answer: For tax purposes, we distinguish between nontaxable
contract programming services and taxable sales of custom or
canned software. In either event, no Texas tax is due if
the customer takes delivery outside of Texas.
- Programming done at bank's location inside of Texas.
Answer: Contract programming services are not taxable in
Texas. We define this as a service contrast with a client
to design a program specifically for his or her needs, in
which program the client will retain the legal rights.
If you (the programmer) retain the rights to the program,
you are not considered a contract programmer, but a seller
of custom software. Both canned and custom software are
taxable.
- Programming done at **'s office in **** and
mailed to banks.
Answer: See answer 6. Canned or custom software shipped to
a customer located in Texas is subject to Texas tax. If you
ship such software directly out-of-state (i.e.; the customer
does not take possession in Texas), there is no Texas tax
due. Contract programming is not a taxable service.
- Hardware & software sales to banks located outside of Texas.
Answer: If you ship the hardware/software directly out-of-
state, no Texas tax is due.
- Hardware & software sales to banks located inside Texas.
ANSWER: Taxable.
I have enclosed the applicable rule, for your information.
This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have further questions, feel free to write or call me at
1-800-252-5555, ext. 3-3889.
Sincerely,
John Christian
Attorney
Tax Administration
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