Is a foodservice category management company's custom business-analytics reports and strategy consulting for restaurant/distributor clients a taxable information service in Texas?

Plain-English summary

The Texas Comptroller ruled that a "foodservice category management" firm's custom business reports for restaurant distributors, manufacturers, and operators are nontaxable consulting services, not a taxable information service.

The company gathers confidential, anonymized transactional data from third parties and combines it with its own management-consulting team's analysis, proprietary analytics tools, and data experts to produce custom reports covering strategic overview, business planning, price/promotion evaluation, and market positioning ("strategic quadrant mapping") for each client. Reports are for the client's exclusive use under a mutual nondisclosure agreement and are individually tailored to that client's specific business situation.

Texas taxes "information services" — furnishing general or specialized current information — but the Comptroller found this company's work goes well beyond that. Because the reports apply the company's own consulting expertise, advanced analytics, and individualized business recommendations to each specific client's data and circumstances (rather than simply delivering compiled current information), they're properly classified as consulting services, which Texas doesn't tax at all.

What this means for you

Business analytics, market research, and category management firms

If your deliverables combine industry/third-party data with your own consulting expertise to produce individualized business recommendations (not just compiled current information), you're likely providing a nontaxable consulting service, even though the underlying process involves substantial data gathering and analysis.

Restaurant, foodservice, and other B2B clients purchasing custom strategy reports

Confirm whether your vendor's product is truly customized consulting analysis versus a compiled information product resold with minor customization — the former is untaxed, the latter is a taxable information service (with only 20% exempt).

Accountants and tax professionals

The line between "information service" and "consulting service" turns on whether the provider is doing more than "furnishing" current information — applying professional judgment, expertise, and individualized recommendations to a client's specific situation pushes a service into the nontaxable consulting category, consistent with the Comptroller's treatment of pension/benefits administration and similar professional-judgment-heavy services in other rulings.

Common questions

Q: Is a custom business analytics or market research report always tax-exempt in Texas?
A: Not automatically — it depends on whether the provider is applying genuine consulting expertise and individualized recommendations, or simply compiling and delivering current information. The former is nontaxable consulting; the latter is a taxable information service.

Q: Does using third-party data in a report make the output taxable?
A: Not by itself. This company used confidential third-party industry data as an input, but because it applied its own analytics, expertise, and custom recommendations on top of that data, the final product was still classified as nontaxable consulting.

Q: What role did the nondisclosure agreement play in this ruling?
A: It supported (but wasn't the sole basis for) the consulting classification — the report was for the client's exclusive use, reinforcing that it was an individualized deliverable rather than compiled information sold broadly.

Q: Can I rely on this ruling for my own analytics or consulting business?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific service model and facts and can't be relied on by others.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed)
• Tex. Tax Code § 151.101 (Use Tax Imposed)
• Tex. Tax Code § 151.010 (Taxable Item)
• Tex. Tax Code § 151.0101(a)(10) (Taxable Services — information services)
• Tex. Tax Code § 151.0038 (Information Service — definition)
• 34 Tex. Admin. Code § 3.342(a)(2) (Information Services — definition, furnishing current information)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202109056L

Original ruling text

September 24, 2021

RE: Private Letter Ruling No. 20210222093941

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. 12, 2021, and additional information received via email on March 18, 2021. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance, for purposes of sales tax, on whether your client’s services are nontaxable consulting services or proprietary information services.

Facts Presented

** (Taxpayer) is a “foodservice category management” company providing various services including: strategic overview, business planning, price and promotion evaluation, strategic quadrant mapping, and consumer and operator insights. Its clients include companies that are foodservice distributors, manufacturers, and foodservice operators.

Taxpayer uses transactional and insight data to create category strategies and deliver business results to its clients. It gathers foodservice data from third parties, who provide Taxpayer with confidential anonymized data for the majority of its client’s reports.

Taxpayer develops a consultation report and other deliverables from relevant data as well as information from other sources that it compiles for a particular client. Taxpayer generates custom reports using its internal management consulting team, a suite of analytics tools, data experts, and other proprietary tools.

Taxpayer’s reports and deliverables to its clients are for the client’s exclusive use. Each client signs a mutual nondisclosure agreement stating both parties may not share Taxpayer’s reports outside of the company without Taxpayer’s permission.

Taxpayer contends that it provides nontaxable consulting services to help clients manage and grow their food-related businesses by applying Taxpayer’s unique experience and expertise to confidential industry-specific data.

Question, Ruling, and Analysis

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

Question: Are Taxpayer services consulting services or information services?

Ruling: Taxpayer sells consulting services.

Analysis: Sales or use tax is imposed on the sale or use of each taxable item in this state. Sections 151.051 (Sales Tax Imposed) and 151.101 (Use Tax Imposed). A taxable item is comprised of both tangible personal property and taxable services. Section 151.010 (Taxable Item). The term “taxable services” only includes those services listed in Section 151.0101 (“Taxable Services”). Information services are enumerated as taxable services under Section 151.0101(a)(10), however consulting services are not subject to sales or use tax.

Information service is defined as providing general or specialized news or other current information, including financial information. Section 151.0038 (Information Services). Rule 3.342(a)(2) (Information Services) states that taxable information services includes furnishing 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.

Taxpayer uses their client’s transactional sales information, insight into the client’s foodservice business, and information provided by other sources to prepare reports that are uniquely targeted towards each client. Taxpayer performs advanced data analytics to address specific needs, identify emerging projected trends, risks, and opportunities for each client in the example reports. Taxpayer also provides individualized suggestions for clients to improve their business planning.

Taxpayer’s example reports provide detailed information that is very specific to the individual business needs of its clients individually. Taxpayer’s use of client and industry data to produce the examples of custom sales analysis reports 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’s detailed reports clearly indicate that the services provided to their clients are consulting services, not information services.

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. PLR20210222093941.

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.