If a Texas business creates a website for a customer located in Mexico, does it still owe Texas sales tax on the charge?

Plain-English summary

The Comptroller's Tax Policy Division answered a follow-up question from a taxpayer about the taxability of web pages the taxpayer creates for customers located in Mexico. A prior letter (dated October 17, 1995) from the Comptroller's office had already explained that the actual creation of website software is taxable as tangible personal property, and that charges to maintain a customer's advertisement or to scan in a customer's data were taxable data processing charges.

This letter reinforces and extends that answer: tangible personal property — here, the website software — that is located on a server in Texas is still subject to Texas sales tax even when it is sold to a customer located in Mexico. Where the property sits (on a Texas server) controls, not where the customer is located.

The letter also flags a possible way out for the customer: Rule 3.330, governing data processing services, includes an exemption for the multistate benefit of a taxable service [Rule 3.330(f)]. If the customer uses the website both in Texas and elsewhere, the customer may be able to claim that exemption on the data processing portion of the charge.

The Comptroller noted this opinion is based on the facts presented, and could change if the facts are different.

What this means for you

Web developers and internet service providers in Texas

If you build websites or web pages hosted on servers located in Texas, the charge for creating the site is generally taxable as a sale of tangible personal property (the software), and ongoing charges for maintaining content or processing customer data are taxable data processing services under Rule 3.330. It does not matter that your customer is out of state or, as here, outside the country (Mexico) — what matters is that the property (the software) resides on a server located in Texas.

Businesses buying website services from a Texas developer

If you are the customer and you use the website or the data processing service in more than one state (i.e., it provides a "multistate benefit"), ask your vendor about the multistate-benefit exemption in Rule 3.330(f). That exemption may reduce the taxable portion of a data processing charge, though it does not appear to apply to the initial charge for creating the website software itself as described in this letter.

Anyone relying on this letter

This is a redacted 1995 letter ruling addressed to a specific taxpayer, based on the specific facts that taxpayer presented. It is old guidance from the mid-1990s internet era, and current Comptroller policy on taxation of website creation and hosting may have changed since — confirm current treatment before relying on this.

Common questions

Q: Is creating a website or web page taxable in Texas?
A: Per this letter and the referenced October 17, 1995 letter, yes — the creation of website software is taxable as a sale of tangible personal property, and related charges (like maintaining a customer's advertisement or scanning in customer data) are taxable data processing services.

Q: Does it matter that the customer is located in Mexico rather than Texas?
A: No. The letter states that tangible personal property (the software) located on a server in Texas is still subject to Texas sales tax even when sold to a customer in Mexico.

Q: Is there any exemption available?
A: Possibly. The customer may be able to claim the exemption for multistate benefit of a taxable service under Rule 3.330(f), which applies to data processing services.

Q: Can another business rely on this letter for its own situation?
A: No. STAR letters generally may be relied on only by the taxpayer to whom they were issued, this opinion is expressly based on the facts presented, and it may no longer reflect current Comptroller policy.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.330 (Data Processing Services), including the multistate-benefit exemption at subsection (f)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9512853L

Original ruling text

December 21, 1995

Dear *****:

Your letter of November 8, 1995, concerning the taxability of web pages created
for customers located in Mexico.

In our letter of October 17, 1995, Al Van Allen explained that the actual
creation of website software was taxable as tangible personal property. The
charge to maintain a customer's advertisement or scan in customer's data was
considered taxable data processing charges.

Tangible personal property (the software) that is located on a server in this
state yet sold to a customer in Mexico is still subject to sales tax.

I have enclosed Rule 3.330, concerning data processing services. Your customer
may be able to avail themselves of the exemption for multi-state benefit of a
taxable service [see Section (f)].

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Administration Division, Comptroller
of Public Accounts.

Sincerely,

Kevin Koller
Tax Policy Division