Is an hourly charge for on-premise use of computers, memory typewriters, or printers -- for tasks like data entry, retrieval, or business accounting -- a taxable data processing service?

Plain-English summary

A business (apparently connected to legal services, given the reference to "legal software") asked whether charging customers for on-premise use of its computers and legal software was taxable. The Comptroller's answer: yes -- charges for on-premise use of computers, memory typewriters, and printers for data entry, data retrieval, data search, information compilation, payroll and business accounting, data production, and other computerized data storage or manipulation are taxable data processing services.

The key legal hook is Tex. Tax Code § 151.0035, which broadly defines Data Processing Services to include "the use of a computer or computer time for data processing," and critically, that definition applies whether the processing is performed by the provider of the computer/computer time OR by the purchaser or other beneficiary of the service. In other words, it doesn't matter if the customer is the one actually typing and running the software -- letting them use your equipment on-site for these purposes is itself the taxable service.

What this means for you

Businesses that rent out computer/office equipment time (by the hour or otherwise)

If customers pay to use your computers, memory typewriters, or printers on-premise for data entry, accounting, or similar tasks, that charge is taxable data processing under § 151.0035 -- even though the customer (not you) is the one doing the actual work.

Law firms and similar businesses providing client computer access

Charging clients an hourly rate to use your office computers and specialized software (e.g., legal research/document software) for data-related tasks falls under this same taxable category.

Accountants and tax professionals

Note the breadth of § 151.0035's "use of a computer or computer time" language -- it captures self-service equipment rental scenarios, not just situations where your staff does the processing for the customer.

Common questions

Q: Is it taxable to let a customer use my office computer for an hourly fee to do their own data entry?
A: Yes, per this letter -- § 151.0035 covers use of a computer or computer time regardless of who does the actual processing.

Q: Does this only apply to modern computers, or older office equipment too?
A: This letter also applies the rule to memory typewriters and printers used the same way.

Citations and references

Statutes:

• Tex. Tax Code § 151.0035 (definition of Data Processing 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/9911881L

Original ruling text

November 12, 1999

Fax **

Dear **:

Thank you for your letter we received by fax November 10, 1999, concerning the
taxability of a charge for use of your computers and legal software.

Charges for on-premise use of computers, memory typewriters, and printers for
data entry, data retrieval, data search, information compilation, payroll and
business accounting, data production, and other computerized data and other
computerized data and information storage or manipulation are taxable as data
processing services. Tax Code Section 151.0035 defines Data Processing
Services to include "the use of a computer or computer time for data processing
whether the processing is performed by the provider of the computer or computer
time or by the purchaser or other beneficiary the service."

The State Tax Automated Research system, which provides viewing and downloading
of edited letter rulings, hearings, AG Opinions, etc., may be accessed on the
Internet at: http://www.window.state.tx.us

This opinion is based on the facts you submitted and current law. Other facts
though similar, may result in different answers.

If you have any questions or need more information, I'll be glad to help you.
Please call me toll free at 1-800-531-5441, extension 5-0330. The direct line
is 512/475-0330. You may also write to Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division