Is a $100 'reinstatement fee' charged to customers renewing an expired computer maintenance agreement taxable, even if it's separately stated on the invoice?

Subject

Software — Maintenance Agreement Reinstatement Fee — Taxable Even If Separately Stated

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9312L1274C01

Plain-English Summary

A taxpayer asked the Comptroller whether a "reinstatement fee" charged to customers who wanted to renew an expired computer maintenance agreement was taxable. The Comptroller held that it is taxable. The letter explains that charges for computer program maintenance made by the same person who sold the computer program are taxable, citing Rule 3.308(b)(3) on software maintenance. Because the $100 reinstatement fee is part of the charge for computer program maintenance on software sold by this service provider, it is taxable — and that holds true even if the fee is separately stated on the bill from the rest of the maintenance charge. The letter notes it is based on the specific facts submitted and that other, similar-looking facts could yield a different result.

What This Means For You

If you sell software and also sell maintenance agreements for that same software: Charges for maintaining the program — including a fee to reinstate a lapsed maintenance agreement — are treated as taxable charges for computer program maintenance, according to this letter.

Separately stating the fee does not change the answer: The letter is explicit that even if the $100 reinstatement fee is broken out as its own line item, it is still taxable because it is part of the overall charge for maintaining computer software sold by the same provider.

Facts matter: The Comptroller notes this opinion is based on the specific facts submitted and that other, similar facts could produce a different result — so this letter should not be read as a blanket rule for every reinstatement-fee scenario.

Q&A

Q: Is the $100 reinstatement fee for renewing an expired software maintenance agreement taxable?
A: Yes. The letter states the fee is taxable because it is part of the charge for computer program maintenance on software sold by the service provider, per Rule 3.308(b)(3).

Q: Does separately stating the reinstatement fee on the invoice make it non-taxable?
A: No. The letter specifically addresses this: "Even if separately stated, the $100 'reinstatement fee' is taxable because it is part of the charge for computer program maintenance."

Q: Would this answer be different if the maintenance provider hadn't originally sold the software?
A: The letter only addresses the situation where the maintenance is provided "by the person who sold the computer program." It does not state what result would follow for a third-party maintenance provider who did not sell the software, and it cautions that other facts, though similar, may yield different results.

Original ruling text

December 14, 1993

Dear**:

Thank you for your letter concerning the taxability of a
"reinstatement fee" charge to customers wishing to renew expired
computer maintenance agreements.

Charges for computer program maintenance by the person who sold
thecomputer program are taxable. See enclosed Rule 3.308(b)(3)
regarding software maintenance. Even if separately stated, the $100
"reinstatement fee" is taxable because it is part of the charge
for computer program maintenance on software sold by the service
provider.

This opinion is based on the facts you submitted. Other facts,
though similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The
direct line is 512/475-0030. You may also write to Tax
Administration, Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9311126L.2 and/or 9311126L