| (a) Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1) Data processing services -- Processing, reformatting, or
manipulating data provided by the customer is data processing and is not included
in the definition of information services.
(2) Information services -- Furnishing general or specialized
news or other current information, including financial information, by printed,
mimeographed, electronic, or electrical transmission, or by utilizing wires,
cable, radio waves, microwaves, satellites, fiber optics, or any other method
now in existence or which may be devised, and electronic data retrieval or
research. The term information services does not include Internet access service
or information services that are provided in conjunction with and merely incidental
to the provision of Internet access service when provided for a single charge.
(3) Internet -- collectively the myriad of computer and
telecommunications facilities, including equipment and operating software,
that comprise the interconnected worldwide network of networks that employ
the Transmission Control Protocol/Internet Protocol, or any predecessor or
successor protocols to the protocol, to communicate information of all kinds
by wire or radio.
(4) Internet access service -- a service that enables
users to access content, information, electronic mail, or other services offered
over the Internet and may also include access to proprietary content, information,
and other services as part of a package of services offered to consumers.
Internet access service does not include any other taxable service, unless
the taxable service is provided in conjunction with and is merely incidental
to the provision of Internet access service. Individuals providing Internet
access should refer to §3.366 of this title (relating to Internet Access
Services).
(5) Nontaxable information services.
(A) The sale of information that is gathered or compiled on
behalf of a particular client is not subject to tax if the information is
of a proprietary nature to that client and may not be sold to others by the
person who gathered or compiled the information. Any subsequent sale of such
information by the client for whom the information was gathered or compiled
is subject to tax. Examples include opinion polls and management consultant
reports.
(B) Any sale of information primarily derived from laboratory,
medical, or exploratory testing or experimentation or any similar method of
direct scientific observation of physical phenomena is not subject to tax.
Examples include, but are not limited to, geophysical survey information,
polygraph test, and medical test results.
(C) Information required to be furnished pursuant to the Open
Records Act is not subject to sales tax. See §3.341 of this title (relating
to Sales of Governmental Publications, Records, or Documents). Fees paid when
obtaining these documents may be excluded from the tax base if separately
stated when the documents are furnished to clients. Tax will only be due on
the amount over and above the cost of the documents.
(6) Taxable information services. Information that
is gathered, maintained, or compiled and made available by the provider of
the information service to the public or to a specific segment of industry
for a consideration is subject to sales tax. Examples of taxable information
services include, but are not limited to, the following:
(A) newsletters;
(B) scouting reports and surveys, including those used in sports
and the oil and gas and related industries;
(C) mailing lists, and bad check lists (only that percentage
which represents names of persons located in Texas is taxable);
(D) real estate listings;
(E) financial, investment, stock market, or bond rating, or
financial reports, other than charges to a person by a financial institution
for account balance information;
(F) news clipping services and wire services; and
(G) abstracts of title and other information provided by title
plants.
(b) Hold permits. All providers of information services must
obtain Texas sales and use tax permits and collect tax on charges for information
services, or accept properly completed resale, exemption, or direct payment
permit certificates in lieu of collecting tax. See §3.285 of this title
(relating to Resale Certificate; Sales for Resale); §3.287 of this title
(relating to Exemption Certificates); §3.288 of this title (relating
to Direct Payment Procedures and Qualifications). Effective October 1, 1999,
20% of the total amount charged for information services is exempted from
sales and use tax. The exemption applies to services performed on or after
October 1, 1999. The exemption does not apply to services performed before
the effective date and billed or paid for after the effective date of the
exemption.
(c) Exempt information services. Sales tax is not due on information
services sold to a newspaper or to a radio or television station licensed
by the Federal Communications Commission, if an exemption certificate is obtained.
The exemption certificate must state that the purchaser is a newspaper with
a general circulation published at least as frequently as weekly, or is a
station licensed by the Federal Communications Commission.
(d) Resale certificates.
(1) Providers of information service may issue a resale certificate
in lieu of tax to suppliers of tangible personal property only if care, custody,
and control of the property will be transferred to the service provider's
client. For example, an information provider purchases magnetic tape to transfer
information to customers. The tape is transferred to the customer, and the
customer owns and uses the tape to review the information. The information
provider may purchase the tape tax free by issuing a resale certificate. Tax
is due on the total amount charged the customer, including amounts for the
tape and for the services.
(2) A resale certificate may be issued for a service if
the buyer intends to transfer the service as an integral part of taxable services.
A service will be considered an integral part of a taxable service if the
service purchased is essential to the performance of the taxable service and
without which the taxable service could not be rendered.
(3) A resale certificate may be issued for a taxable service
if the buyer intends to incorporate the service into tangible personal property
which will be resold. If the entire service is not incorporated into the tangible
personal property, it will be presumed the service is subject to tax and the
service will only be exempt to the extent the buyer can establish the portion
of the service actually incorporated into the tangible personal property.
If the buyer does not intend to incorporate the entire service into the tangible
personal property, no resale certificate may be issued, but credit may be
claimed at the time of sale of the tangible personal property to the extent
the service was actually incorporated into the tangible personal property.
(e) Unrelated services.
(1) A service will be considered as unrelated if:
(A) it is not an information service nor a service taxed under
other provisions of the Tax Code, Chapter 151;
(B) it is of a type which is commonly provided on a stand-alone
basis; and
(C) the performance of the unrelated service is distinct and
identifiable. Examples of an unrelated service which may be excluded from
the tax base include consultation, training, expedited filing charges, escrow
fees, or charges for proprietary information.
(2) Where nontaxable unrelated services and taxable
services are sold or purchased for a single charge and the portion relating
to taxable services represents more than 5.0% of the total charge, the total
charge is presumed to be taxable. The presumption may be overcome by the information
provider at the time the transaction occurs by separately stating to the customer
a reasonable charge for the taxable services. However, if the charge for the
taxable portion of the services is not separately stated at the time of the
transaction, the service provider or the purchaser may later establish for
the comptroller, through documentary evidence, the percentage of the total
charge that relates to nontaxable unrelated services. The information provider's
books must support the apportionment between exempt and nonexempt activities
based on the cost of providing the service or on a comparison to the normal
charge for each service if provided alone. If the charge for exempt services
is unreasonable when the overall transaction is reviewed considering the cost
of providing the service or a comparable charge made in the industry for each
service, the comptroller will adjust the charges and assess additional tax,
penalty, and interest on the taxable services.
(3) Charges for services or expenses directly related
to and incurred while providing the taxable service are taxable and may not
be separated for the purpose of excluding these charges from the tax base.
Examples would be charges for meals, telephone calls, hotel rooms, or airplane
tickets.
(f) Service benefit location. If both the information service
provider and the customer are located in Texas, Texas tax is due.
(g) Service benefit location - multistate customer.
(1) To the extent information service is used to support a
separate, identifiable segment of a customer's business (other than general
administration or operation of the business) the service is presumed to be
used at the location where that part of the business is conducted.
(2) If that part of the business is conducted at locations
both within and outside the state, the service is not taxable to the extent
it is used outside Texas. A multistate customer may use any reasonable method
for allocation which is supported by business records.
(3) A multistate customer purchasing information services
for the benefit of both in-state and out-of-state locations is responsible
for issuing to the information service provider an exemption certificate asserting
a multistate benefit, and for reporting and paying the tax on that portion
of the charge for information which will benefit the Texas location. An information
provider that accepts such a certificate in good faith is relieved of responsibility
for collecting and remitting tax on transactions to which the certificate
relates.
(4) The customer's books must support the assignment of
the service to an identifiable segment of the business, the determination
of the location or locations of the use of the service, and the allocation
of the taxable charge to Texas.
(5) To the extent the use of the service cannot be assigned
to an identifiable segment of a customer's business, the service is presumed
to be used to support the administration or operation of the customer's business
generally. The service is presumed to be used at the customer's principal
place of business. The principal place of business means the place from which
the trade or business is directed or managed.
(h) Local taxes.
(1) For local sales tax purposes, city, county, transit authority,
and special purpose district sales taxes are due if an information provider
has only one place of business (the location where clients request service)
within the boundaries of a local taxing entity. Local sales tax must be collected
based on the tax rate at that location, except that no MTA or CTD sales tax
is due on services provided at a location outside the boundaries of the transit
area. In the case of multiple locations, if an order for service is placed
at one location but the service is provided at another location, the place
of business from which the service is provided will determine to which local
taxing entity the tax is allocated.
(2) If a place of business is outside the boundaries of
a local taxing entity, the information provider will be required to collect
local use tax if the client is within the local taxing entity and the information
provider has representation in the local taxing entity as outlined in §3.286
of this title (relating to Seller's and Purchaser's Responsibilities). Even
if the information provider is not required to collect local use tax, the
client is still liable for the tax if the service is performed or a benefit
is derived from the service within the boundaries of a local taxing entity.
(A) An in-state customer purchasing information services for
the benefit of locations in more than one local taxing entity is responsible
for issuing to the information provider an exemption certificate asserting
a multi-city benefit and for determining the extent of benefit for each entity.
The local tax for each entity must be reported, allocated, and paid by the
customer. An information provider that accepts in good faith an exemption
certificate claiming a multi-city benefit is relieved of responsibility for
collecting and remitting local tax on transactions to which the certificate
relates.
(B) A multistate customer purchasing information services for
the benefit of both in-state and out-of-state locations is responsible for
issuing an exemption certificate and for reporting and paying local tax as
provided by subsection (f)(3) and (4) of this section.
(i) Use tax. If an information provider is not doing business
in Texas or in specific local taxing jurisdictions and is not required to
collect Texas state or local tax, it is the Texas customer's responsibility
to report the state and local use tax directly to this office.
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