Is a charge for training customers on how to use software subject to Texas sales tax?

Plain-English summary

A software seller asked about the tax treatment of training that a commission sales representative performs and bills to the client, without specifying whether the rep was working on behalf of the software's seller. The Comptroller's answer didn't need those missing facts to state the general rule: training and instruction are not, by themselves, a taxable service in Texas.

The key question is how the training relates to a sale. Tax Code § 151.007 defines "sales price" broadly to include the whole amount charged for a taxable item, without subtracting out related services — so training billed in connection with a software sale becomes part of that sale's taxable price. But training that is separately provided is not taxable, and that separateness can come from either of two things: the charge being separately stated on the invoice, or the training being performed by a different entity than the one that sold the software. Either way, a stand-alone, separately stated instructional charge for how to use software is not taxable.

What this means for you

Software sellers who also offer training

Bundle your training into the software price and it becomes taxable along with the rest of the sale. Break it out as a separately stated line item — or have a different entity provide it — and the training charge itself is not taxable.

Commission sales representatives who bill clients directly for training

Whether your training charge is taxable turns on whether you (or your principal) sold the underlying software and whether the training charge is separately stated, not on your title or compensation structure.

Accountants and tax professionals

This is a clean statement of the "separately provided" doctrine under § 151.007: separate invoicing OR a separate performing entity each independently make training nontaxable, even when the training relates to a taxable product.

Common questions

Q: Is training on how to use software always taxable in Texas?
A: No. Training bundled into the sale of the software is taxable as part of the sales price, but training that is separately stated on the invoice, or performed by a different entity than the software seller, is not taxable.

Q: Does it matter who actually performs the training?
A: Yes — training performed by a separate entity that did not sell the software is considered "separately provided" and is not taxable, even without a separately stated charge.

Q: Can I rely on this letter for my own training arrangement?
A: No. This opinion is rendered based on the facts presented, and additional or different facts may change the result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• Tex. Tax Code § 151.007 (definition of sales price; no deduction for services connected with the sale)

Subject

Software — Training On — Site/One — On — One And Formal Instruction Vs. Technical Support/Problem Solving — Guidelines

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9712375L

Original ruling text

December 16, 1997

Dear Mr. **:

Thank you for your recent letter regarding the tax treatment of training
performed and billed to the client by a commission sales representative. You
did not mention if the training was done on behalf of the principal or if the
sales representative was providing instruction in the use of software.

Training or instruction is not in and of itself a taxable service. Tax Code
Section 151.007 defines sales price to include the total amount for which a
taxable item is sold without deduction for services in connection with the
sale. Accordingly, the charge for training is subject to sales tax if the
training is provided in connection with the sale of the product and not taxable
if it is separately provided. The performance of a training service by a
separate entity that did not sell the taxable item is considered "separately
provided" and is not taxable.

Separately stated charges for instruction on the use of software are not
taxable.

This opinion is rendered 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. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division