Ezel / Tax Rulings / TX
TX 9202L1162D12 Sales and/or Use Tax (State,Local,MTA) 1992-02-13

Was a customer's original purchase of exclusively created software from a contract programmer taxable in Texas?

Short answer: No. The original custom-software purchase was not subject to sales or use tax because the customer obtained ownership rights. The customer then had to collect sales tax on copies sold to others.

Apply this to your situation

This page answers the general question as of 1992. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1992
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

A contract programmer created software exclusively for a customer, and the customer obtained the ownership rights. The customer planned to sell copies to multiple buyers.

The Comptroller said sales or use tax was not due on the customer's original purchase from the contract programmer. But the customer had to collect sales tax on every copy it later sold.

What this means for you

Software developers and customers

The result depended on software created for the specific customer and ownership rights passing to that customer. The letter did not address licenses of existing or retained-rights software.

Software resellers

Nontaxable acquisition of custom software did not make downstream copies tax free. The rights owner became responsible for collecting tax on its sales.

Common questions

Was the original contract-programming purchase taxable? No.

Who owned the software rights? The customer that commissioned the software.

Were copies later sold to customers taxable? Yes.

Citations and references

  • 34 Tex. Admin. Code Rule 3.308 (computer hardware and software)

Source

Original ruling text

February 13, 1992

Dear *****:

Thank you for the additional information that you provided
concerning the "'Gun Control System' software which was created
exclusively for our subsidiary, *****"

You stated in our telephone conversation that the software was
created for **. * obtained the ownership rights to
the software and plans to sell copies to multiple customers. Sales or
use tax is not due on the original purchase of the software
created for * by a contract programmer. ** must
collect sales tax on all copies that it sells to its customers.

Rule 3.308 on computer hardware and software is enclosed for your
reference.

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 about my response. 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

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