Is a fee for converting a customer's real-estate database into a format compatible with licensed software taxable in Texas?

Plain-English summary

The seller licensed or sold software for managing a customer's accumulated real-estate database. Because the software required the customer's data to be converted into a compatible format, the seller charged for manipulating that data.

The Comptroller classified the data-conversion charge as a taxable data-processing service under Rule 3.330(a). It separately said that if the seller modified the computer program it sold, the modification charge was taxable under Rule 3.308(b)(1).

What this means for you

Calling the work a conversion fee did not separate it from Texas data-processing tax. The ruling also distinguished work on the customer's data from modification of the seller's program, but treated both described charges as taxable under different rules.

Common questions

Was converting the customer's database taxable? Yes. It was taxable data processing.

Did the fact that the customer had accumulated the data matter? No exception was stated; the charge to manipulate that customer data was taxable.

What if the seller also changed its software? Charges to modify the sold program were taxable under Rule 3.308(b)(1).

Citations and references

• 34 Tex. Admin. Code Rule 3.330(a) — data-processing services
• 34 Tex. Admin. Code Rule 3.308(b)(1) — computer-program modification charges

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1135B05

Original ruling text

September 19, 1991

Dear ***:

Thank you for your letter concerning the "conversation fee" that you
are charging one of your customers.

You indicated that you are selling or licensing a software package
to manage a database of real estate information that your customer
has accumulated over several years. In order for your software to
work with the customer's database you had to convert the customer's
data into a format compatible with your software.

The fee for manipulating your customer's data is a taxable data
processing service under section (a) of Rule 3.330- Data Processing
Services. In addition, if you modify the computer program that you sell,
then you must collect tax on those charges per section (b)(1) of Rule
3.308 on computers.

This opinion is based on the facts that 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, ext. 34685, from
anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Administration Division