If an outside company merely stores a business's physical data-storage media (magnetic tapes, computer discs) off-site and off-line — providing no electronic access to the data and no other services — is that off-site storage taxable as a data processing service?

Plain-English summary

A business asked about the tax treatment of off-site data storage — an outside company holding onto the physical media (magnetic tapes, computer discs, etc.) containing the business's data. The Comptroller answered based on the presumption that the outside company provides no data processing services — it simply stores the physical media off-site and off-line, without providing any computer access to the stored data.

Under those circumstances, off-site data storage is not a taxable data processing service. It doesn't meet the definition of "computerized data and information storage or manipulation" under Tax Code § 151.0035 and Rule 3.330(a), because there's no computerized manipulation or electronic access happening — it's pure physical custody of media.

What this means for you

Records-storage and off-site data-storage vendors

If your service is limited to physically warehousing a client's storage media (tapes, discs) without providing electronic/computerized access, indexing, retrieval processing, or manipulation of the data, your storage fee is not a taxable data processing service. The moment you add computerized access or manipulation, this analysis would need to be revisited.

Businesses outsourcing backup/archival data storage

Confirm exactly what your vendor provides — pure "warehouse the tapes" storage is nontaxable, but if the arrangement includes any electronic access, retrieval, or processing of the data, that additional service could be taxable as data processing.

Accountants and tax professionals

This letter draws a clean line at "computerized" — the statute and rule tax computerized data storage/manipulation, not the mere physical custody of storage media. Worth flagging when a client's off-site storage contract is ambiguous about whether any computerized access is included.

Common questions

Q: Is off-site storage of backup tapes or discs taxable in Texas?
A: Not if the storage company merely holds the physical media off-line with no computerized/electronic access provided — that's not a taxable data processing service.

Q: What would make off-site data storage taxable?
A: If the storage provider also gives computerized access to the data or performs any data processing/manipulation, that portion would fall under the taxable "data processing service" definition.

Q: What's the legal basis for this distinction?
A: Tax Code § 151.0035 and Rule 3.330(a) define taxable data processing service around "computerized data and information storage or manipulation" — pure off-line physical storage doesn't meet that definition.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0035 (definition of "data processing service")
• 34 Tex. Admin. Code Rule 3.330(a) (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/200007547L

Original ruling text

July 31, 2000

From: Bettie Peterson

To:

Subject: Off Site Data Storage and Off Site File Storage

Thank you for your recent email.

I am presuming the outside company provides no data processing services to your
company and it merely stores, off-site and off-line, the physical media
(magnetic tapes, computer discs, etc.) that contain your company data. In
addition, the outside company provides no computers that would provide access
electronically to the data stored at their facility. Under these circumstances,
off site data storage is not taxable "computerized data and information storage
or manipulation" within the meaning of the statute and the rule. Tax Code
Section 151.0035, Rule 3.330 (a).

Referenced rules are available at
.

The State Tax Automated Research system, that provides viewing and downloading
of rules, 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 questions or need more information, I will be glad to help you.
You may call me toll free from anywhere in the United States at 1-800-531-5441,
extension 5-0330.