Information Technology Services and Texas Sales and Use Tax | Freeman Act

Information Technology Services and Texas Sales and Use Tax

Under certain circumstances, information technology and related services may be subject to Texas sales and use taxes. The details will vary depending on how Texas Tax Code and Texas Comptroller’s Rules characterize a particular technology and/or service. Here’s a quick explanation.

Sale of computer programs

First of all, the sale, lease or license of computer programs is subject to sales and use tax as a sale of tangible personal property.[1] For sales and use tax purposes, a “computer program” is defined as “a series of programs coded for acceptance or use by a computer system and designed to enable the computer system to process data and provide results and information. defined as an instruction. ”[2]

The selling price of a computer program includes all charges associated with the sale of the program, including any installation, modification, repair, maintenance or restoration charges.[3]

contract programming

However, contract programming is tax exempt.[4] “Contract programming” means “[s]Services that create or develop new computer programs or repair, maintain, modify or restore existing computer programs. However, if the service provider does not sell or retain the rights to the computer program being created, developed or repaired, it will be maintained, modified or restored. ”[5] Contract programming includes:

1. Create a new computer program to perform a specific function for a customer, provided that all rights in the program are transferred to the customer.
2. Customize any computer program owned by Customer or licensed to Customer by a third party.Also
3. Modify computer programs created for customers by programmers under prior contractual programming agreements, or perform repair, maintenance, or restoration of computer programs.[6]

Repair, maintenance or restoration of computer programs

Fees for computer program repair, maintenance, or restoration by computer program sellers are taxable as tangible personal property repairs.^[7] Maintenance includes error correction, improvement or technical support and is provided via the Internet or telephone.^[8]

On the other hand, a fee for repairing, maintaining, or restoring a computer program by someone other They are taxed less than those who sell programs.[9]

Data processing service

Data processing services are generally subject to sales and use tax.[10] Tax is levied on 80% of the value of data processing services.[11]

“Data processing” is defined as “the processing of information for the purposes of compiling and creating records of transactions, maintaining information, and entering and retrieving information”.[12]

Under Texas tax law, data processing includes “word processing, data entry, data retrieval, data retrieval, compilation of information, generation of payroll and business accounting data, and other computerized storage or manipulation of data and information.” It specifically stipulates that the[13] Regulatory authority regulations on data processing state that data processing includes “entering company inventory control data, maintaining records of employee hours worked, filing payroll tax returns, preparing W-2 forms, and processing payroll checks. Calculations and preparations” are included.[14] Other items determined by the General Accounting Office to be data processing include software-as-a-service fees^[15] Website design, creation, implementation, maintenance and hosting.^[16]

However, data processing services do not include transcription of medical dictations by medical transcriptionists, certain encryption services for electronic payment information, and certain payment processing services.[17]

Data processing services also include “the use of computers by providers of other services where the computer is used to facilitate the performance of services or the application of knowledge of physical sciences, accounting principles and tax law”. not . . ”[18]

Information service

Information services are subject to sales and use taxes.[19] A tax is levied on 80% of the value of information services.[20]

Texas tax law generally defines an “information service” as “providing general or professional news or other up-to-date information, including financial information.” . . Also . . retrieving or studying electronic data. ”[21] The Auditing Regulations on Information Services states that taxable information services shall have “[i]Information that is collected, maintained, or compiled by information service providers and made available to the general public or specific industry segments for consideration. .[22]

The following are examples of taxable information services.

1. Newsletter;
2. Reconnaissance reports and investigations, including those used in sports, oil, gas, and related industries.
3. Mailing lists, and bad checklists (only percentages representing names of people living in Texas are taxable).
4. real estate listings;
5. Financial, investment, stock market, or bond ratings, or financial reports (other than billings by financial institutions to individuals for account balance information).
6. News Clipping Service and Wire Service.When
7. Title A summary of the title and other information provided by the plant.[23]

Information services considered tax exempt are sales.

1. Selling proprietary information of a particular client, including opinion polls and management consultant reports, collected or compiled on behalf of that client.
2. Selling information derived primarily from laboratory, medical, or exploratory tests or experiments, such as geophysical survey information, polygraph tests, and medical test results.When
3. Information you are required to provide pursuant to the Open Records Act.[24]

Information services may be distinguished from data processing services in that data processing services include data provided by customers, whereas information services tend to include data provided by unrelated third parties ( However, this distinction is still debatable).[25]

final thoughts

Determining the taxability of information technology and related services can be a burden.

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[1] look Texas Tax Code §§ 151.005 (“sale” or “purchase”), 151.009 (“tangible personal property”), 151.010 (taxable items), 151.051(a) (subject to sales tax), 151.101(a) ( Use tax imposed) ); See also 34 Tex. Code § 3.308(c)(1)(A) (Computers – Hardware, Computer Programs, Services, and Sales).

[2] Texas Tax Code § 151.0031 (“computer programs”); 34 Tex. Code § 3.308(a)(1).

[3] 34 Tex. Code § 3.308(c)(1)(B); See also Texas Tax Code 151.007(a), (b) (“sales price” or “receipt”).

[4] 34 Tex. Code § 3.308(c)(4).

[5] Ditto. § 3.308(a)(2).

[6] Ditto. § 3.308(a)(2)(A).

[7] Ditto. § 3.308(c)(2).

[8] Ditto.

[9] look STAR Accession No. 9910802L (October 15, 1999).

[10] look Texas Tax Code §§ 151.0035(a) (“Data Processing Services”), 151.010, 151.0101(a)(12) (“Taxable Services”), 151.051(a)(12), 151.101(a); 34 Tex. administrator. Code § 3.330(b) (data processing services).

[11] look Texas Tax Code § 151.351 (Information and Data Processing Services); 34 Tex. Code § 3.330(b).

[12] 34 Tex. Code § 3.330(a)(1).

[13] Texas Tax Code §§ 151.0035(a)(1); See also 34 Tex. Code § 3.330(a)(1).

[14] 34 Tex. Code § 3.330(a)(1).

[15] Executive Decision No. 114,087 (2020); STAR Accession No. 200805095L (May 28, 2008).

[16] STAR Accession Numbers 202010013L (October 22, 2020), 200304802L (April 1, 2003).

[17] Texas Tax Code § 151.0035(b).

[18] 34 Tex. Code § 3.330(a)(1).

[19] look Texas Tax Code §§ 151.0038(a) (“Information Services”), 151.010, 151.0101(a)(10), 151.051(a), 151.101(a); 34 Tex. Code § 3.342(b) (information services).

[20] See Texas Tax Code Section 151.351. 34 Tex. Code § 3.342(b).

[21] Texas Tax Code § 151.0038(a).

[22] 34 Tex. Code § 3.342(a)(6).

[23] Ditto. § 3.342(a)(6).

[24] Ditto. § 3.342(a)(5) (information services).

[25] look Instill Corp. v. Hegar, No. 03-18-00374-CV (Tex. App.—Austin May 31, 2019, pet. deny); 34 Tex. Code § 3.342(a)(1).