Is a company's generic weather/market forecasting service, sold to multiple clients, subject to Texas sales tax, and does custom forecasting made just for one client get treated differently?

⚠️ Note on superseded guidance

STAR's records show this ruling was partially superseded on September 6, 2022. The original ruling (issued March 11, 2019) held that the taxpayer's generic weather/market forecasting service was a taxable information service because the taxpayer only collected weather observations from vendors rather than directly observing the physical phenomena itself. The Comptroller has since determined that this reasoning was wrong: generic forecasting built from underlying scientific/weather observation data does qualify for the Rule 3.342(a)(6)(B) exclusion for "information primarily derived from laboratory, medical, or exploratory testing or experimentation or any similar method of direct scientific observation of physical phenomena," even where the taxpayer itself didn't perform the original observation. The custom-forecast holding (nontaxable consulting) is not affected. The summary below describes the ruling as originally written, flagged where superseded.

Plain-English summary

The Texas Comptroller originally split a forecasting company's two service lines into different tax treatments — but the taxable half has since been overturned by later Comptroller guidance.

The taxpayer sold two products: (1) a generic forecast for electricity wholesale markets (predicted load, price, and generation data), sold as the same report to many clients, and (2) a custom forecast built for one client at a time using that client's own proprietary data blended with the taxpayer's weather data.

Generic forecasts — originally taxable, NOW SUPERSEDED. The Comptroller originally ruled the generic forecast was a taxable "information service" because it was essentially a compiled report sold to multiple clients, and it didn't qualify for the scientific-observation exclusion because the taxpayer collected weather data from vendors rather than directly observing the phenomena itself. That reasoning has since been superseded — the Comptroller now treats this type of forecasting as exempt information derived from direct scientific observation, even secondhand through vendor data.

Custom forecasts — nontaxable consulting, still good law. Because the custom forecast combined the taxpayer's data with a specific client's own proprietary data to produce a tailored analysis, the Comptroller found this went beyond merely "furnishing" news/information and was instead a nontaxable consulting service. This part of the ruling was not flagged as superseded.

What this means for you

Weather- and market-forecasting service providers

If you sell generic, off-the-shelf forecasts (not tailored to one client's own data) built from weather or similar scientific observation data — even data purchased from vendors rather than directly measured by you — current Comptroller guidance treats that as exempt information from direct scientific observation, not a taxable information service. This directly reverses what this 2019 ruling originally said.

Analytics and research firms selling both generic and bespoke reports

The line between taxable "information service" and nontaxable "consulting" still turns on whether you're combining a client's own proprietary data into a bespoke analysis (consulting, nontaxable) versus compiling and reselling the same report to many clients (information service — though now potentially exempt if it's scientific-observation-based).

Accountants and tax professionals

Don't rely on the "must directly observe the phenomena" reasoning in the analysis section of this ruling — it has been superseded. When researching a similar forecasting-service question, check STAR for the superseding guidance (dated 09/06/2022) rather than citing this ruling's generic-forecast holding directly.

Common questions

Q: Is a generic weather-based forecast report taxable in Texas today?
A: Based on this ruling's original text alone, it would appear taxable — but STAR has partially superseded that holding as of September 6, 2022. Current guidance treats such forecasts as exempt information derived from direct scientific observation, even if the provider sourced the underlying weather data from vendors.

Q: Is a forecast custom-built using a client's own proprietary data taxable?
A: No, per this ruling (and not flagged as superseded) — that's treated as a nontaxable consulting service rather than a taxable information service.

Q: Can I rely on the superseded portion of this ruling?
A: No. A superseded ruling no longer reflects the Comptroller's current position on the superseded issue. Businesses should seek current guidance rather than relying on the outdated generic-forecast analysis here.

Q: Can I rely on this ruling at all for my own situation?
A: Only the taxpayer it was issued to could ever rely on it, and even for that taxpayer the generic-forecast holding no longer applies going forward given the 2022 supersession.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051(a) (Sales Tax Imposed)
• Tex. Tax Code § 151.010 (Taxable Item)
• Tex. Tax Code § 151.0038 (Information Service — definition)
• Tex. Tax Code § 151.0101 (Taxable Services — includes information services)
• Tex. Tax Code § 151.351 (Information Services and Data Processing Services — 20% exemption)
• 34 Tex. Admin. Code § 3.342(a)(2) (furnishing general/specialized current information)
• 34 Tex. Admin. Code § 3.342(a)(5)(A)-(B) (nontaxable exclusions — proprietary client information; direct scientific observation)
• 34 Tex. Admin. Code § 3.342(a)(6)(B) (taxable compiled reports — SUPERSEDED as applied to this taxpayer's generic forecasts, 09/06/2022)
• Comptroller's Decision No. 104,366 (2011) (proprietary information requires client's enforceable property right)
• Comptroller's Decision No. 28,018 (1991)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201903008L

Original ruling text

STAR Superseded Information

Supersede type: partial

Document superseded on: 09/06/2022

Issue(s) that caused the document to be superseded: generic weather forecasting

Reason(s): Said forecasting does qualify for exemption under Rule 3.342(a)(6)(B) as information primarily derived from laboratory, medical, or exploratory testing or experimentation or any similar method of direct scientific observation of physical phenomena.

March 11, 2019

RE: Private Letter Ruling No. 20180222114417

**, Taxpayer No. ****

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[ENDNOTE: 1] We are responding to your request dated Feb. 15, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of a service that provides both generic forecasting reports to multiple clients and custom forecasts to individual clients. Specifically, you asked whether these services are subject to Texas sales tax.

Facts Presented

** (Taxpayer) provides two types of forecasting services: (1) a generic forecast for electricity wholesale markets that predicts load, price, and generation data for electricity markets to multiple clients; and (2) custom forecasts that are prepared and sold to individual clients. Clients are prohibited from reselling the forecasts.

Taxpayer uses weather data from its vendors and its software and data to produce generic forecasts. Taxpayer utilizes weather data from its vendors, its software, and proprietary client data to develop its custom forecasts for specific clients.

Clients purchasing either forecasting service can access their forecast data (otherwise known as OnLine Service) by a secure web portal, a Microsoft Excel interface provided by the taxpayer, and a File Transfer Protocol or FTP website. Taxpayer grants Clients a limited license to remotely access and use this forecasting service. The Clients may use the information obtained from Taxpayer's OnLine Service for any legitimate purpose that does not compete in the open market with the OnLine Service. The Client is specifically prohibited from disclosing to third parties any part of the OnLine Service data, or information that may be considered proprietary to the Taxpayer.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Is Taxpayer’s generic forecast subject to Texas sales and use tax?

Ruling One: Yes. Taxpayer is providing a taxable information service under Rule 3.342(a)(6) (Information Services). Under Section 151.351 (Information Services and Data Processing Services), twenty percent of the charge for information services is exempt.

Analysis for Ruling One: Section 151.051(a) (Sales Tax Imposed) imposes a tax on the sale of taxable items in this state. Section 151.010 (Taxable Item) defines a taxable item as tangible personal property and taxable services. The list of taxable services provided by Section 151.0101 (“Taxable Services”) includes information services.

Section 151.0038 (“Information Service”) defines an information service, in part, as furnishing general or specialized news or other current information.

Rule 3.342(a)(2) defines an information service as “[f]urnishing 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.” Furthermore, a taxable information service under Rule 3.342(a)(6) includes 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.

Certain services are excluded from the definition of information services under Rule 3.342(a)(5)(A) or (B).

Taxpayer uses weather data from its vendors and its software and data to produce generic forecasts. Taxpayer’s information includes historical observations of weather, forecast information from vendors and purchased information from vendors, as well as load and price data for power markets. It combines this information and furnishes a report to Clients who desire it. This is substantially similar to the “reports” described in Rule 3.342(a)(6)(B). This is a taxable information service.

This generic forecast service does not meet the requirements of a nontaxable information service under Rule 3.342(a)(5)(A) or (B).

A nontaxable information service under Rule 3.342(a)(5)(A) includes the sale of information that is gathered or compiled on behalf of a particular client. To qualify as a nontaxable information service under this section, the information collected: (1) must be gathered or compiled on behalf of a particular client; (2) must be of a proprietary nature to that client; and (3) may not be sold to others by the person who gathered or compiled the information.

The Taxpayer Agreement states the Taxpayer retains rights to the information gathered or compiled. See, e.g., §5.a. in Appendix A and §4.a. in Appendix B. Comptroller's Decision No. 104,366 (2011) addresses proprietary information services. The decision states “[f]or the information to be of a proprietary nature, the client must also have an enforceable property right in the information such that the client could prevent the service provider from selling it to another party.” See also Comptroller’s Decision No. 28,018 (1991). Taxpayer’s contracts do not place such limitations on Taxpayer. See, e.g., §2.c. in Appendix B. The information provided is therefore not proprietary in nature and the service does not meet the definition of a nontaxable information service under Rule 3.342(a)(5)(A).

Rule 3.342(a)(5)(B) excludes from the definition of information service the “…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.” Taxpayer does not qualify for this exclusion.

Taxpayer did not directly observe the physical phenomena that form the basis of its forecast. It merely collected such data from observations of others. In addition, as noted, the data is substantially similar to the reports for oil and gas and related industries described in Rule 3.342(a)(6)(B).

Taxpayer’s generic forecast service does not fall under the definition of a nontaxable information service provided by Rule 3.342(a)(5)(A) or (B) and is taxable under Rule 3.342(a)(6)(B). Twenty percent of the amount charged for information services is exempt from tax. Section 151.351.

Question Two: Is Taxpayer’s custom forecast service subject to Texas sales use tax?

Ruling Two: No. Taxpayer is providing a nontaxable consulting service.

Analysis: Taxpayer’s uses its software to combine weather data from its vendors and proprietary client data to produce its custom forecast for specific clients. The use of client data to produce a custom forecast goes beyond the scope of merely “[f]urnishing general or specialized news or other current information . . .” as described by Rule 3.342(a)(2). Taxpayer is performing a nontaxable consulting service for its customers.

The Texas Tax Code and Texas Administrative Code 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. 20180222114417.

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.