Texas Letter Ruling 9406L1306A08: Stock Market Investors Service — Computer Tracking / Monitoring Of Client'S Investments And Alerting When Prices Change

Plain-English summary

A tax practitioner wrote in on behalf of a client who was starting a company to serve stock market investors. The planned service would use computers to track the price of each client's investments and alert the client — by a pre-recorded message sent over fax and telephone lines — whenever a price moved a certain percentage from the previous day's closing bid. The alert would simply tell the client to contact their regular broker to find out what had happened in the market; the company itself would not give investment advice or place buy/sell orders. The service was to launch for Texas customers first, with plans to expand nationwide, and was to be billed as a fixed monthly fee.

The Comptroller held that this is a taxable information service under 34 Tex. Admin. Code Rule 3.342, because the company is collecting and furnishing price/market information to subscribers rather than acting as a broker. The fact that no brokerage activities (investment advice, or execution of buy/sell orders) occurred did not take the service outside the tax base — it is precisely the absence of brokerage activity, and the presence of automated price-tracking and alerting, that makes this an information service rather than an exempt or different kind of transaction. The letter also flags the geographic limit on the tax: under Rule 3.342(h)(2), charges to out-of-state customers are not taxable to the extent the service is used outside Texas, which matters for the company's planned nationwide expansion.

What this means for you

Business owners launching data/alert services for investors

If your business model is "computers watch a data feed and push automated alerts to subscribers for a fee," Texas will very likely treat that as a taxable information service, even if you carefully avoid giving investment advice or acting as a broker-dealer. Structuring the service to stay out of brokerage activity does not make it non-taxable — it can actually reinforce that the service is a pure information service under Rule 3.342.

Accountants and tax professionals advising fintech/data-alert startups

When a client describes a subscription service that tracks prices, market data, credit information, or similar data points and notifies customers of changes, check Rule 3.342 first. This ruling is a clean example of applying that rule to price-alert services and illustrates the Comptroller's reasoning: the presence of automated monitoring/alerting plus the absence of brokerage/advisory activity supports an information-service characterization.

Companies with multi-state customer bases

If your information service will have customers both in and outside Texas, remember Rule 3.342(h)(2): the portion of the charge attributable to use of the service outside Texas is not subject to Texas tax. Businesses expanding nationally, as the taxpayer here planned to do, should track where customers actually use the service to properly source the taxable and non-taxable portions of their charges.

Common questions

Q: Is a service that just alerts investors about price changes automatically taxable in Texas, even if it gives no investment advice?
A: Yes. This ruling held the service taxable as an information service specifically because it did not involve brokerage activities like investment advice or trade execution — those facts supported, rather than undermined, taxability under Rule 3.342.

Q: Does it matter that the alerts are delivered by fax and pre-recorded phone message rather than a live broker or a website?
A: No — the ruling treats the substance of the service (computer-based tracking and furnishing of price information) as the taxable information service; the delivery method (fax/phone) doesn't change that characterization.

Q: If the company later expands to customers outside Texas, do those customers owe Texas sales tax on the service?
A: Not to the extent they use the service outside Texas. Rule 3.342(h)(2), cited in the ruling, exempts information services from Texas tax to the extent the customer's use occurs outside the state.

Q: Would the answer change if the company also gave investment advice or placed trades for clients?
A: The ruling doesn't address that scenario directly since the taxpayer's client didn't plan to do so, but the letter's reasoning turns on the absence of brokerage activity; a service that also acted as a broker could raise different tax questions not resolved by this letter.

Citations and references

• 34 Tex. Admin. Code § 3.342 (Information Services)
• 34 Tex. Admin. Code § 3.342(h)(2) (sourcing rule — service not taxable to the extent used outside Texas)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1306A08

Original ruling text

June 21, 1994

Dear**:

I have received your letter regarding sales tax.

Facts: You have a client in the process of starting a
company that will provide services to investors in the stock
markets. This service will utilize computers to track the
price of their clients' investments and alert those clients
when the price of their investment moves a certain
percentage from the previous days closing bid price. For a
fixed monthly fee, those clients will be alerted by a
pre-recorded message through fax and telephone lines to
contact their regular broker to determine exactly what
market changes have taken place. Initially this service will
be provided to Texas customers only; future plans include
customers all over the country. No brokerage activities,
such as advice on investments or taking orders to buy and
sell investments, will be undertaken by your client.

Question: You ask if your client will be subject to sales
tax under the Texas Tax Code.

Response: Your client's planned activities are taxable
information services. Enclosed is a copy of Rule 3.342,
Information Services, for your reference. For the out-of
state customers, the service is not taxable to the extent it
is used outside Texas; see 3.342(h)(2).

This opinion is based on the facts as stated above. If there
are additional or different facts, the opinion could change.

If you have any questions, please don't hesitate to write
the Tax Administration Division or call one of our tax
specialists toll free at 1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division

NOTE: Previous Accession Number 9406425L