A planned Internet business will sell sports and horse-race betting selections to account holders for a fee, refunding a bonus amount if the pick loses. Can the business structure its fees so most of the charge counts as nontaxable consulting rather than a taxable information service?

Plain-English summary

A prospective business planned to sell daily sports and horse-racing picks over the Internet: account holders would log in, choose a pick for a specific event or race, pay a fee (the letter uses $10 as an example) if the pick won, and get that fee back plus a bonus (an additional $5, i.e., a "150% guarantee") if the pick lost, with weekly account reconciliation. Before launching, the business asked the Comptroller two things: (1) could it restructure its fee (e.g., $9 "consulting" + $1 "information") so the charge would be treated as nontaxable consulting rather than taxable information services, and (2) how would sales tax apply given its refund-plus-bonus policy.

On the first question, the Comptroller drew a substantive, not a labeling-based, line: consultation services centered on the consultant's own expert or professional opinion are not taxable (if unrelated to sales of taxable items), but a service that's really in the nature of information services — the letter gives the example of telling someone where to get the best price on a product — is taxable as an information service regardless of how the provider styles or splits the charge. Because the business's picks were substantively an information service, the Comptroller ruled the entire charge to the customer is subject to sales tax no matter how the fee is divided between "consulting" and "information" line items.

On the second question, the Comptroller applied the basic transaction-tax principle: sales tax is due per transaction, and no tax is due on a specific fee that ends up fully refunded to the customer. But the extra bonus amount refunded on top of the original fee (the "150%" guarantee) is not itself a tax credit — it can't be used to reduce the customer's sales tax liability on other, separate transactions.

What this means for you

Internet-based information/consulting service providers

You cannot avoid sales tax on an information service by relabeling most of the charge as "consulting" — the Comptroller looks at the substance of what you're providing, not how you split or name the fee. If your core service is providing information (predictions, best-price data, recommendations derived from data), the whole charge is likely taxable as an information service.

Businesses with refund or guarantee policies tied to service outcomes

If you fully refund a specific transaction's fee, no sales tax is due on that refunded transaction. But bonus amounts paid on top of a refund are not tax credits — they can't offset sales tax owed on the customer's other, unrelated transactions.

Accountants and tax professionals

This letter is a useful illustration of the consulting-vs-information-services line under Texas sales tax: genuine reliance on the provider's own expert/professional judgment (unconnected to a taxable item sale) stays nontaxable, but data/recommendation services aimed at a specific commercial outcome (like where to find the best price, or which pick to bet on) fall on the taxable information-services side even when marketed as "consulting."

Common questions

Q: Can I make my information service nontaxable by calling most of the fee a "consulting fee"?
A: No. The Comptroller taxes based on the substance of the service. If it's really an information service, the entire charge is taxable regardless of how you split or label it.

Q: What's the difference between taxable information services and nontaxable consulting?
A: Consultation services centered on the consultant's own expert/professional opinion, unrelated to sales of taxable items, are not taxable. Services more in the nature of supplying information (like where to find the best price, or race/game selections) are taxable information services.

Q: If I refund a customer's fee, do I still owe sales tax on that transaction?
A: No — sales tax is a transaction tax, and no tax is due when the fee for a specific transaction is fully refunded.

Q: Can I use a refunded bonus amount to reduce sales tax I owe on the customer's other purchases?
A: No — the additional refunded money cannot be used to reduce a customer's sales tax liability for other transactions.

Q: Can I rely on this letter for my own Internet service business?
A: No. It's based on the specific facts presented, and the letter notes the opinion may change on additional or different facts.

Citations and references

No specific statutes or rule numbers were cited in this letter; the Comptroller applied general sales-tax principles distinguishing taxable information services from nontaxable consulting services.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9804515L

Original ruling text

April 27, 1998

Dear **:

Thank you for your recent letter which is restated in part with response below.

I have a few questions regarding state tax on Internet based information
services / consulting. I have gone through the different cases listed on your
web site, and although I have a decent grasp for the general issue, I do have
some specific questions that I hoped you may be able to answer.

Our business will be a sports and horse racing selection service, where we
offer our daily selections for a fee to account holders over the Internet. The
customer would log on to their account on our web page, then choose the
selections they wanted for a particular sporting event or horse track.

If our particular selection wins, we will charge the customer, say $10. If the
selection does not win, we will refund to the customer's account the $10 plus
an additional $5. At the end of each week, we will reconcile each customer's
account.

Questions:

1. Information services versus consulting. I can see how our service may fall
   under one, the other, or a combination of the two. Certainly this is important,
   as consulting appears not to be taxable, while information services are
   taxable. Could we organize our service so that it would be considered
   completely consulting?

Is it possible to organize our fee structure so that, of the $10 cost to the
customer, $9 is for our consulting service and $1 is for the actual
information?

2. Regarding our "150% refund" policy. Would sales tax be due on every $10
   "selection" if we ultimately ended up refunding $15 to the customer due to
   "poor service"? Or could we ultimately charge sales tax on the total weekly
   balance at the time of invoicing?

Based on our "150% guarantee" it seems like we are offering more of a
consultant based service, using the Internet (Vs mail, a phone line or personal
meeting) to give the customer our recommendation.

Response: Consultation services central to which are the expert or
professional opinions of the consultant are not taxable if they are not related
to sales of taxable items. Consultation services more in the nature of
information services, such as where to get the best price on a product, are
taxable as information services. Accordingly, your total charge to your
customer is subject to sales tax regardless of how you style the charges.

Sales tax is a transaction tax. No tax is due when the fee for a specific
piece of information is refunded however, the additional money refunded may not
be used to reduce a customer's sales tax liability for other transactions.

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