Is a separately stated project consulting charge on a multimedia (CD-ROM) production invoice taxable as part of the overall taxable presentation, or can it be a nontaxable standalone service?

Plain-English summary

A producer building a multimedia CD-ROM presentation asked about the tax treatment of a specific invoice, which itemized: a 2-minute intro video, a main-content animation, interface design, interface programming (using authoring software like Macromedia Director), CD-ROM duplication, and a separately stated "project consulting" charge.

The Comptroller ruled the total sales price is taxable, including the duplication charges for any additional copies. The consulting charge, as billed here, is part of the sales price of the presentation and is therefore also taxable — bundling it into the same invoice for this specific project makes it part of the overall taxable transaction.

But the letter (building on a phone conversation referenced in the text, and citing the reasoning behind the San Antonio SMSA line of cases) explains when a similar consulting charge could be nontaxable: if the consultant offers consulting services on a stand-alone basis — independent of any multimedia presentation sale — and the price of the presentation itself doesn't change based on whether the customer buys the consulting, that creates a genuine "mixed transaction." In a mixed transaction, neither the nontaxable consulting nor the taxable product is merely incidental to the other; the customer independently wants both the advice and the resulting taxable item. In that scenario, the separately stated consulting charge would not be taxable.

What this means for you

Multimedia, video, and web production companies

If you want a portion of your invoice (like project consulting) to be nontaxable, it's not enough to separately state it — you need to genuinely offer that service on a stand-alone basis, independent of whether the customer buys your production work, and your production pricing can't be conditioned on the customer also buying the consulting.

Consultants who also sell taxable deliverables

Structure your stand-alone consulting offering clearly (with its own independent pricing, available with or without the taxable product) if you want that charge to escape sales tax when bundled onto the same invoice as a taxable item.

Accountants and tax professionals

This letter is a clean practical example of the "mixed transaction" doctrine flowing from the SMSA line of cases — worth citing whenever a client wants to separately state a services charge on an invoice that also includes taxable tangible personal property or taxable services.

Common questions

Q: Is a project consulting charge on a multimedia production invoice automatically nontaxable if it's separately stated?
A: No — as billed in this letter's facts, the separately stated consulting charge was still taxable because it was tied to that specific taxable presentation.

Q: What would make the same consulting charge nontaxable?
A: The consultant would need to offer the consulting service on a genuine stand-alone basis, with the taxable product's price unaffected by whether the customer buys the consulting — creating a "mixed transaction" where neither part is incidental to the other.

Q: Is duplicating additional copies of the CD-ROM taxable?
A: Yes — the sale of any duplicates is taxable, per this letter.

Q: Can any multimedia producer rely on this exact answer?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own billing structure with a tax professional.

Citations and references

No specific statutes or rules were cited by number in the original letter, though the analysis draws on the reasoning of the Rylander v. San Antonio SMSA line of cases (referenced in the letter's subject line).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200010777L

Original ruling text

October 10, 2000

From: Lindey Osborne

To: **

Subject: tax question for Multimedia production

Dear **:

Thank you for your recent email. You asked that we address the taxability of a
multimedia presentation you are creating.

You stated the product will be delivered on CD-ROM and will display an
interface containing buttons to access the video and animation modules. Your
billing to the client will include:

One 2-minute video for intro (using QuickTime): $**
One Animation for main content (using QuickTime): $**
Interface design: $**
Interface programming using authoring software like Macromedia Director:
$**
Duplicating CD-ROM: $**
Project consulting: $**
Total sales price: $**

Response: The total sales price for the presentation is taxable. Also, the
sale of any duplicates would be taxable.

The separately stated consultation charge on this invoice is part of the sales
price of the presentation. As such the consulting charge is taxable.

However, as I mentioned in our phone conversation the other day, there may be
an occasion when the separately stated consulting charge would not be taxable.
This would be the case if you provide a consultation service on a stand-alone
basis, (i.e., you offer consultation services independent of a multimedia
presentation sale) and the price of the presentation is not affected by the
purchase (or lack of purchase) of the consultation. When the charge for a
nontaxable consulting service is combined with the purchase of a taxable item,
but each is independently desired and independently provided, the result is a
mixed transaction. In this situation, neither element of the transaction is
incidental to the other. The real object of the transaction was both the advice
obtained through the consulting services and the resulting taxable product. As
such, the separately stated charge for consulting would not be taxable.

This opinion is based on the facts presented. Other facts, though similar, may
result in different answers.

I hope this information is helpful. If you have any additional questions, I'll
be glad to help you. My email address is: . My
direct line is (512) 475-0037 or you may reach me toll free at 1-800-531-5441
ext. 5-0037.

Sincerely,

Lindey Osborne
Tax Policy Division