A systems-integration company partners with a software vendor to implement software the vendor sold directly to a third-party customer. The integration company handles installation/configuration, business consulting, and integration programming — but didn't sell the software itself. Is the installation and configuration work taxable?
Apply this to your situation
This page answers the general question as of 2000. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
A company (Company A) that historically provided nontaxable systems integration and consulting services entered into an alliance partnership with a software vendor (Company B). Company B developed and sold the software directly to a third-party customer; Company A then handled implementation for that customer, including software installation and configuration, business consulting, and system integration programming. Company A asked two related questions:
- Since Company A didn't sell the software itself, are its installation and configuration charges taxable? No — charges for installing and configuring software the installer did not sell are not taxable.
- If installation/configuration were taxable, would the consulting and integration-programming charges stay nontaxable as long as they're separately stated? The Comptroller pointed back to the answer to question 1 — since the installation/configuration itself isn't taxable, the separate-statement question about the other services doesn't need to be reached the way it would if installation were taxable.
What this means for you
Systems integrators and IT implementation partners
If you're brought in to install and configure software developed and sold by someone else (an alliance/reseller arrangement), your installation and configuration charges are not taxable in Texas — a materially different result than if you had sold the software yourself. Keep clear documentation of who sold the software to establish this distinction if it's ever questioned in an audit.
Software vendors using implementation partners
Structuring the sale (vendor to customer) separately from implementation (partner to customer) can have real tax consequences for the implementation partner's charges — worth understanding when setting up alliance or channel-partner arrangements.
Accountants and tax professionals
The key fact driving the nontaxable result is that Company A did not sell the software — this letter doesn't address whether the outcome would differ if the installer also sold (or resold) the software itself. Confirm the seller/installer relationship carefully before applying this letter's reasoning to a new fact pattern.
Common questions
Q: Is software installation and configuration taxable in Texas?
A: Per this letter, charges for installing and configuring software you did not sell are not taxable.
Q: Does it matter whether the installer also sold the software?
A: Yes — this letter's nontaxable answer specifically turns on the fact that the installer (Company A) did not sell the software to the customer.
Q: Do consulting and system integration programming charges need to be separately stated to avoid tax?
A: The letter didn't need to resolve this because the installation/configuration itself was found not taxable; it may be relevant in a different fact pattern where the underlying installation charge is taxable.
Citations and references
No specific statute or rule section was cited in the available text of 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/200007502L
Original ruling text
July 10, 2000
Dear **:
Thank you for your letter to Mr. Karey Barton, concerning the Texas sales and
use tax implications of the business transactions described below. Mr. Barton
is no longer an employee of this agency.
Background
Company A has historically been in the business of providing non-taxable
systems integration and consulting services. Company A enters into an alliance
partnership with Company B to implement software that was developed by Company
B and sold directly by Company B to a third party. Services provided to the
third party by Company A during the implementation will include software
installation and configuration, business consulting, and system integration
programming.
Rulings Requested
- Since Company A did not sell the software to the third party, are the
software installation and configuration services provided by Company A taxable?
Response: Company A's charges for installing and configuring software not sold
by Company A are not taxable.
- If the software installation and configuration is taxable, are the business
consulting and system integration programming services non-taxable as long as
these charges are separately stated on the invoice along with the software
installation charges?
Response: See response to 1.
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:
Get today's answer for your situation
You just read a 2000 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.