Is a subscription-based online childhood education curriculum (with lessons, live tutoring, and assessments) subject to Texas sales tax?

Plain-English summary

The Texas Comptroller ruled that a subscription-based online childhood education curriculum — reading, spelling, grammar, math, and social studies lessons delivered through a website or app, used by schools, teachers, and home-schooled students nationwide — is not subject to Texas sales tax, even though it has features that could resemble three different taxable services. The curriculum includes reading books, videos, printable worksheets, games, puzzles, one live tutoring session per month, and guided assessments, and it's built to support the Texas Essential Knowledge and Skills (TEKS) standards set by the State Board of Education.

The Comptroller worked through, and ruled out, all three taxable categories that might have applied. It's not a taxable amusement service because it's for the "primary purpose of education," evidenced by TEKS alignment and use in Texas public schools — even though it includes games and puzzles. It's not a taxable information service because the company doesn't gather, compile, and sell curated information to customers; it delivers instructional content instead. And even though the platform has data-processing-like elements (storing and managing a database of lessons and materials, similar to a service the Comptroller found taxable in a 2008 ruling), the Comptroller concluded the dominant character of the offering is instructional, not data processing, given the TEKS alignment, live tutoring, and guided assessments.

What this means for you

EdTech and online curriculum providers

If your platform delivers structured educational content — even with game-like or interactive elements, live tutoring, and features that overlap with data storage/retrieval — Texas is likely to treat it as nontaxable if the dominant purpose is instruction rather than entertainment or data services. Alignment with an official curriculum standard (like TEKS) and adoption by schools are treated as strong evidence supporting the education characterization.

Businesses whose product has features spanning multiple service categories

This is a useful example of the "primarily instructional in nature" test winning out even when a service has genuine elements of more than one taxable category (here, arguably amusement-like games AND data-processing-like content storage). The Comptroller looks at the dominant character of the whole offering, not just whether any individual feature technically fits a taxable definition.

Accountants and tax professionals

This ruling cites two companion 2018 rulings reaching the same nontaxable-education result on similar facts (STAR 201809008L and 201809009L, both also cited in the companion webinar-training ruling issued the same day, 201902012L) — together these read as a consistent, deliberate policy position on online education products rather than isolated one-offs.

Common questions

Q: Does adding games, puzzles, or videos to an online course make it taxable as amusement?
A: Not automatically — the Comptroller looks at whether the primary purpose is education. Alignment with recognized curriculum standards and use by schools support the education characterization even with game-like elements.

Q: Does storing lesson content in an online database make the service taxable data processing?
A: Not automatically — the Comptroller acknowledged the platform has data-processing-like elements but still found the dominant character to be instructional given the curriculum standards, tutoring, and assessments involved.

Q: Can any online course provider rely on this ruling?
A: No. It binds the Comptroller only as to the taxpayer and facts in this specific request and cannot be relied on by any other taxpayer, though it's consistent with the Comptroller's other same-era rulings on online education.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (sales tax imposed)
• Tex. Tax Code § 151.010 (taxable item)
• Tex. Tax Code § 151.0101(a) (taxable services)
• Tex. Tax Code § 151.0028 (amusement services)
• Tex. Tax Code § 151.0038 (information services)
• Tex. Tax Code § 151.0035 (data processing services)
• 34 Tex. Admin. Code Rule 3.298(a)(2) (Amusement Services)
• 34 Tex. Admin. Code Rule 3.342(a)(6) (Information Services)
• 34 Tex. Admin. Code Rule 3.330 (Data Processing)
• 19 Tex. Admin. Code Chapters 110-128 (TEKS standards)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201902023L

Original ruling text

February 22, 2019

RE: Private Letter Ruling No. 20180904093034

**, Taxpayer No. **

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated Sept. 4, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of an online educational service.

Facts Presented

Taxpayer is the creator of COMPANY, an online childhood education curriculum accessed through a subscription-based website or mobile application (the Curriculum). The Curriculum includes lessons and activities in reading, spelling, grammar, mathematics, and social studies. The Curriculum also guides children from lesson to lesson and suggests additional lessons based on assessments. The lessons support Texas Essential Knowledge and Skills (TEKS) standards established by the Texas State Board of Education. Lessons include activities such as reading books, watching videos, completing printable worksheets, playing games, and solving puzzles. Schools, teachers, and home-schooled individuals nationwide use the subscription-based curriculum.

Customers pay by monthly subscriptions that come with one live tutoring session and guided assessment.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Is the purchase of Taxpayer’s online subscription-based curriculum used to educate home-schooled elementary students in Texas a taxable service?

Ruling: Taxpayer’s online subscription-based curriculum is primarily instructional in nature and is not subject to Texas sales and use tax.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Only specifically enumerated services are taxable in Texas. Section 151.0101(a) (“Taxable Services”). Amusement services, information services, and data processing services are all taxable services.

Section 151.0028 (“Amusement Services”) defines an amusement service as “the provision of amusement, entertainment, or recreation, but does not include the provision of educational or health services if prescribed by a licensed practitioner of the healing arts for the primary purpose of education or health maintenance or improvement.” Rule 3.298 (Amusement Services) explains that “nonamusement services” include “activities that are primarily instructional in nature….” Rule 3.298(a)(2). The Comptroller has also issued guidance stating that an online education platform through which a taxpayer provided instruction by streaming pre-recorded lectures taught by professors from accredited universities was for the primary purpose of education and not subject to tax. See STAR Accession No. 201809009L (Sept. 11, 2018).

Taxpayer’s online subscription is not an amusement service because it is for the “primary purpose of education” evidenced by the use of the curriculum throughout Texas public schools. Taxpayer’s curriculum also supports standards imposed by the Texas State Board of Education. See, e.g., 19 Tex. Admin. Code, Chapters 110 through 128. Because Taxpayer’s online lessons are primarily instructional in nature, they are not subject to Texas sales and use tax as amusement services. See STAR Accession No. 201809009L.

Section 151.0038 (“Information Service”) defines an information service as “furnishing general or specialized news or other current information” or “electronic data retrieval or research.” Rule 3.342(a)(6) (Information Services) states that information “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.” The rule provides examples of such services, which include newsletters, scouting reports and surveys, mailing lists and bad check lists, real estate listings, financial reports, and news clipping services and wire services. See Rule 3.342(a)(6).

Taxpayer’s online educational courses do not resemble the types of services described in Rule 3.342(a)(6). Taxpayer does not gather, maintain, or compile information for its customers. Taxpayer’s guided curriculum provides instruction and uses assessments to determine lesson levels for students. Taxpayer’s online educational courses are not general or specialized news or other current information. The courses do not fall within the definition of an information service as set out in Section 151.0038 and Rule 3.342. See STAR Accession No. 201809008L.

Section 151.0035 (“Data Processing Service”) defines a data processing service to include “word processing, data entry, data retrieval, data search, information compilation … and other computerized data and information storage or manipulation.” See also Rule 3.330 (Data Processing).

Taxpayer’s service has elements of data processing. This includes providing access to its online platform and database of lessons and related materials. See, e.g., STAR Accession No. 200805095L (May 28, 2008) (noting that selling access to an online platform to record, manage, and store information is data processing). However, the Comptroller has exclusive jurisdiction to interpret whether services are taxable under Section 151.0101(b). Here, Taxpayer’s online curriculum supports TEKS standards and is used by accredited educational programs, public schools, and home schools. The lessons include live tutoring and guided assessments. Taxpayer’s online curriculum is primarily instructional in nature and not a data processing service. The Curriculum is not subject to Texas sales and use tax.

STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20180904093034.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.