Is telephone or on-site technical support for software and hardware subject to Texas sales tax, and does it matter whether the same company sold the property?

Subject

Software — Technical Support — On Site Or Via Telephone — Provided By Same Person Who Sold Software

Plain-English summary

This letter answers a taxpayer's question about telephone technical support for tangible personal property provided to both Texas residents and non-residents.

The Comptroller's answer turns on where the supported property is located, not on who sold it or where the customer lives:

• Telephone technical support of tangible personal property is taxable if the property being supported is located in Texas.
• Telephone technical support of tangible personal property located outside Texas is exempt from sales tax under Tax Code 151.330(e).

For hardware, it doesn't matter whether the firm providing the support also sold the property -- the taxability rule is the same either way. Software is treated a little differently: there's a separate exclusion for services provided on certain software, found in Tax Code 151.0101(a)(5)(D).

The letter also addresses bundled charges: if a single charge covers telephone technical support for both hardware and software, that whole charge is taxable if the supported property is located in Texas. Whether the support company sold the hardware doesn't change that result.

As with other STAR letters of this era, the Comptroller notes the opinion is based on the facts presented and could change given additional or different facts.

What this means for you

Software and hardware support providers

Whether you have to charge Texas sales tax on telephone (or on-site) technical support depends on where the customer's equipment or software is physically located, not on where the customer is based or whether you originally sold them the product. Support for property in Texas is taxable; support for property located outside Texas is exempt under Tax Code 151.330(e).

Businesses that bundle hardware and software support

If you charge a single, undifferentiated fee for technical support covering both hardware and software, the entire charge is taxable as long as the supported property is in Texas -- you can't carve out a software-only exclusion from a bundled charge on these facts.

Accountants and tax professionals

Keep the two rules distinct: the general sourcing rule for technical-support services (taxable only if the property is in Texas, per Tax Code 151.330(e)) and the separate, narrower exclusion for certain software services under Tax Code 151.0101(a)(5)(D). Also note that, for hardware, whether the support provider was also the seller is irrelevant to taxability.

Common questions

Q: Is telephone technical support for hardware or software located in Texas taxable?
A: Yes. Charges for telephone technical support of tangible personal property are subject to Texas sales and use tax if the service is provided on property located in Texas.

Q: Is technical support for property located outside Texas taxable?
A: No. Charges for telephone technical support of tangible personal property located outside Texas are exempt from sales tax under Tax Code 151.330(e).

Q: Does it matter if the support company also sold the hardware?
A: No, not for hardware. With the exception of software, it does not matter whether the property was sold by the firm providing the support.

Q: Is there a different rule for software support?
A: Yes. There's an exclusion for services provided on certain software, found in Tax Code 151.0101(a)(5)(D).

Q: What happens if one charge covers both hardware and software support?
A: A single charge for telephone technical support of hardware and software is taxable in total if the service is provided for tangible property located in Texas, regardless of whether the support company sold the hardware.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is rendered based on the facts presented, and the opinion may change if there are additional or different facts.

Citations and references

Statutes:

• Tax Code 151.330(e) (exemption for services on tangible personal property located outside Texas)
• Tax Code 151.0101(a)(5)(D) (exclusion for services provided on certain software)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608L1432F12

Original ruling text

August 5, 1996

Dear ***:

Thank you for your recent letter regarding telephone
technical support provided to residents and non-residents of Texas.

Charges for telephone technical support of tangible
personal property are subject to Texas sales and use tax if the service is
provided on property in Texas. Charges for telephone technical support of
tangible personal property provided on property located outside Texas are
exempt from sales tax under Tax Code 151.330(e).

With the exception of software, it does not matter if
the property was sold by the firm providing the support. The exclusion for
services provided on certain software may be found in Tax Code
151.0101(a)(5)(D).

A single charge for telephone technical support of
hardware and software is taxable in total if the service is provided for
tangible property located in Texas. The fact that the support company did or
did not sell the hardware does not affect taxation of the support.

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

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 Policy, Comptroller of Public
Accounts. My Internet address is [email protected].

Sincerely,

Al Van Allen
Tax Policy Division

NOTE: Previous Accession Number 9608600L