Does a company owe sales tax when it just removes software from one computer and installs it on another, and does exempt-program modification also cover editing that computer's autoexec.bat and config.sys files?

Plain-English summary

This letter is a short, informal reply from the Comptroller's Tax Policy Division confirming that a taxpayer is not liable for collecting sales tax on two specific activities. First, the taxpayer had simply removed software from one computer and installed it on another computer — the taxpayer neither created nor sold any of the software involved. Second, the taxpayer had modified a workstation's configuration to connect it to a CC-Mail Post Office, which involved installing a program the taxpayer had not sold and altering the computer's autoexec.bat and config.sys files.

The Comptroller explained that moving software from one computer to another does not, by itself, constitute remodeling of tangible personal property, and that installation alone is not a taxable service. The letter also invokes Rule 3.308, which exempts from tax any charges to modify a program that was not sold by the person doing the modification. Since the taxpayer did not sell the program being modified, the charges for altering the autoexec.bat and config.sys files fell under that exemption and were also not taxable. The Comptroller noted that this opinion was based on the specific facts submitted and that other, similar facts could yield different results.

What this means for you

IT service providers who relocate or reinstall software

If you are simply removing existing software from one machine and installing it on another — without creating or selling the software yourself — this letter indicates that activity is not treated as taxable remodeling of tangible personal property, and installation alone is not a taxable service.

Businesses that reconfigure workstations (e.g., connecting to a mail system)

Charges to modify a program you did not sell — such as altering configuration files like autoexec.bat and config.sys to connect a workstation to a system like CC-Mail Post Office — can fall under the Rule 3.308 exemption for modifying a program not sold by the person doing the modification.

Accountants and tax professionals

This letter is fact-specific and was issued based on a telephone conversation about a particular taxpayer's activities. The Comptroller expressly cautioned that "other facts, though similar, may yield different results," so this letter should not be treated as a blanket rule for all software installation or reconfiguration work.

Common questions

Q: Is moving software from one computer to another a taxable service in this letter?
A: No. The letter states that moving software from one computer to another does not in and of itself constitute remodeling of tangible personal property, and that installation alone is not a taxable service.

Q: Why weren't the charges for altering autoexec.bat and config.sys files taxable?
A: Rule 3.308 exempts from tax charges to modify a program not sold by the person doing the modification. Because the taxpayer did not sell the program being connected to CC-Mail Post Office, the related file alterations fell within that exemption.

Q: Can another taxpayer rely on this exact reasoning for a different fact pattern?
A: The letter itself cautions that it is "rendered based on the facts you submitted" and that "other facts, though similar, may yield different results," so it applies most directly to the specific situation described.

Citations and references

• Rule 3.308 (referenced in the letter as the basis for exempting charges to modify a program not sold by the person doing the modification; a copy was enclosed with the original letter).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9503L1344G03

Original ruling text

From: Van Allen, Al
Date: Thu, Mar 2, 1995 11:41 AM
Subject: RE: **--Tax Question
To: **
File(s): Rule 3.308

In our telephone conversation you said that ** simply removed
the software from one computer and installed it on another. It neither
created nor sold any of the software involved. I understand that modifying
the workstation configuration to connect to CC-Mail Post Office simply involved
installing the program not sold by ** and altering the
autoexec.bat and config.sys files.

** is not liable for collecting sales tax on these functions.

Moving software from one computer to another does not in an of itself
constitute remodeling tangible personal property. And, installation alone is
not a taxable service.

Rule 3.308 exempts from tax, charges to modify a program not sold by the person
doing the modification. Accordingly, charges for altering the autoexec.bat and
config.sys files are also not taxable. I am enclosing a copy of Rule 3.308 for
your files.

This opinion is rendered 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. 3-4680. The direct line is
512/463-4680. You may also write to Tax Administration, Comptroller of Public
Accounts or Internet at [email protected].

NOTE: Previous Accession Number 9503040L