Starting October 1, 1999, are information services and data processing services in Texas only taxed on 80% of their value, and how should that be reported on the sales tax return?

Plain-English summary

A taxpayer asked whether information services would only be taxed at 80% starting October 1, 1999, and, if so, how to report that on the quarterly sales tax return.

The Comptroller confirmed it: Senate Bill 441, passed that legislative session, added new Tax Code Section 151.351, exempting 20% of the value of information services and data processing services purchased on or after October 1, 1999 — meaning only 80% is taxable. For reporting, on a $1,000 sale of information services made on or after that date, the seller collects and reports tax on only $800; the return should show $1,000 of gross sales and $800 of taxable sales.

What this means for you

Sellers of information services or data processing services

Starting with sales on or after October 1, 1999, only 80% of the sales price of these services is subject to Texas sales tax. Collect tax on 80% of the charge, not the full amount.

Bookkeepers and accountants preparing sales tax returns

Report the FULL sale amount as gross sales, but only 80% of it as taxable sales — the example given is a $1,000 sale reported as $1,000 gross / $800 taxable.

Buyers of information/data processing services

Expect invoices dated on or after October 1, 1999 to show tax calculated on 80% of the price rather than the full price.

Common questions

Q: When did the 20% information/data processing services exemption take effect?
A: For services purchased on or after October 1, 1999, under new Tax Code Section 151.351 (added by Senate Bill 441).

Q: How much of an information services charge is taxable now?
A: 80% — 20% of the value is exempt.

Q: How do I report a $1,000 information services sale on my return?
A: Report $1,000 in gross sales and $800 in taxable sales, collecting tax only on the $800.

Q: Can I rely on this letter for my own reporting today?
A: This letter describes the law as it stood when Section 151.351 first took effect in 1999; confirm the exemption percentage is still current, since STAR documents can become outdated even without being marked superseded.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.351 (20% exemption for information services and data processing services, added by Senate Bill 441)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9909732L

Original ruling text

September 24, 1999

"**"

Subject: Information Service

Dear **:

This is in response to your request for a ruling on the following fact
situation and questions:

Are information services only taxed at 80% beginning October 1, 1999?

If this is true where are these sale items reported on the Quarterly tax
return?

Response: Senate Bill 441, passed in the recently concluded legislative
session, amends Tax Code Chapter 151 by adding section 151.351, which exempts
from the tax 20 percent of the value of information services and data
processing services purchased on and after October 1, 1999. The new section
provides:

Sec. 151.351. Information Services And Data Processing Services. There is
exempted from the taxes imposed by this chapter 20 percent of the value of
information services and data processing services.

The text of Senate Bill 441 may be found through the "Texas Legislature Online"
website at .

For sales tax reporting purposes, if on or after October 1, 1999, you make a
$1000 sale of information services sales, you would collect and report sales
tax on only the $800. On your return you would report $1000 of gross sales and
$800 of taxable sales.

Sales tax rules are available on the Internet
.

The State Tax Automated Research system may be accessed on the Internet at:

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Gilbert Zamora

Tax Policy