If a Texas company sells or licenses software to a customer in Canada, does it owe Texas sales tax?

Plain-English summary

A Texas company asked the Comptroller about the taxability of software it sold to a company in Canada, and whether it needed to charge sales tax on that sale.

The Comptroller confirmed that Texas sales or use tax is not due on software sold or licensed to the Canadian company, for use outside of Texas. But the location of delivery/installation is what actually controls: if the customer takes delivery of the software in Texas, or the Texas company installs the software on the customer's computer while that computer is located in Texas, then sales tax would be due despite the customer being a foreign company. The Texas seller should retain documentation showing that the software was shipped, delivered, or installed at a location outside of Texas to support the nontaxable treatment.

What this means for you

Texas software sellers with international customers

Selling to a foreign customer doesn't automatically make the sale Texas-tax-free — what matters is where delivery or installation actually happens. If you deliver electronically to a location outside Texas, or install remotely on equipment outside Texas, the sale isn't taxed. But if the customer (even a foreign one) takes delivery while in Texas, or you install on their computer physically located in Texas, tax is due. Keep shipping, delivery, or remote-installation records showing the out-of-state/out-of-country location.

Accountants and tax professionals

This letter is a clean confirmation that Texas's software sourcing rule turns on delivery/installation location rather than customer nationality or billing address — the same logic seen in other 1999 internet/software letters (e.g., 9910763L) applies here to an international sale.

Common questions

Q: Do I owe Texas sales tax if I sell software to a foreign company?
A: Not if the software is used outside Texas and delivered or installed outside Texas — but you do owe tax if the customer takes delivery in Texas or you install it on their computer while it's in Texas.

Q: What records should I keep to support a nontaxable out-of-state software sale?
A: Documentation showing the software was shipped, delivered, or installed at a location outside of Texas.

Citations and references

No specific Tax Code section or Comptroller rule number is quoted in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910744L

Original ruling text

October 1, 1999

Subject: Out of country sale

Dear Mr. **:

This is in response to your request for a ruling on the taxability of software
that you sold to a company in Canada. You asked if you needed to charge sales
tax, and if so, how much?

Response: Texas sales or use tax is not due on software that you sold or
licensed to a company in Canada, for use outside of Texas. If the customer
takes delivery of the software in Texas, or you install the software in a
customer's computer in Texas, sales tax would be due. You should retain
documentation to show that the software was shipped, delivered or installed, at
a location outside of Texas.

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