Is a cloud-based virtual patient simulation platform, sold to universities for nursing and healthcare courses, subject to Texas sales tax?

Plain-English summary

The Texas Comptroller ruled that a cloud-based virtual patient simulation platform, sold to universities for use in nursing and healthcare courses, is a nontaxable educational service — not a taxable information or data processing service.

The platform lets nursing and other health-professional students practice patient-centered communication, physical assessment, documentation, and clinical reasoning through simulated patient interactions. Each module walks a student through an introduction, a simulated patient interview and physical exam, documentation of findings, and a diagnosis/care-plan exercise, followed by a proficiency score that the professor reviews to give feedback — often followed by a live class debrief.

Texas taxes "information services" (furnishing general/specialized current information) and "data processing services" (compiling, storing, retrieving information) as enumerated taxable services. The Comptroller found the platform wasn't an information service because it doesn't gather, maintain, or compile information for the public or an industry segment the way things like newsletters, mailing lists, or scouting reports do — it teaches. And even though the platform does have data-processing-like elements (it compiles student responses, generates scores, and stores performance data for the schools), the Comptroller found those functions exist to support the platform's core educational instruction and evaluation function, not to sell data processing as a standalone service — so the whole platform stays untaxed.

What this means for you

EdTech companies selling simulation, assessment, or interactive-learning platforms

If your platform's core function is instructing and evaluating students (not merely furnishing compiled information or processing data for its own sake), the Comptroller is likely to treat data-collection and scoring features as incidental to a nontaxable educational service, even though those same features would look like data processing in isolation.

Universities and colleges purchasing simulation/learning software

Confirm whether your vendor's offering functions like an instructional tool (feedback, evaluation, live instructor involvement) versus a pure information-compilation or reporting product — the former is more likely nontaxable under this precedent.

Accountants and tax professionals

The key distinguishing question the Comptroller asks: does the service's data handling exist to support genuine educational instruction and evaluation, or is data compilation/processing itself the product being sold? This ruling and the two 2018 STAR letters it cites (201809008L, 201809009L) form a consistent line of "educational technology is not automatically an information/data processing service" guidance.

Common questions

Q: Is online educational software automatically exempt from Texas sales tax?
A: Not automatically — it depends on what the service actually does. A platform that instructs and evaluates students, even with data-storage and scoring features built in, can be nontaxable, but a platform that primarily compiles and sells information/reports would be taxable as an information service.

Q: Does storing student performance data make an educational platform a taxable data processing service?
A: Not by itself, per this ruling — if that data storage exists to support instructional feedback and evaluation rather than being sold as a standalone data-compilation product, it doesn't trigger data processing tax.

Q: Does the school or the vendor decide whether the platform is taxable?
A: Neither — the Comptroller has exclusive statutory authority to interpret whether a service is a taxable service under Section 151.0101(b), as this ruling notes.

Q: Can I rely on this ruling for my own educational technology product?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific platform and facts and can't be relied on by others, though it illustrates the Comptroller's current approach to interactive learning platforms.

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), (a)(12) (Taxable Services — information services, data processing)
• Tex. Tax Code § 151.0038 (Information Service — definition)
• Tex. Tax Code § 151.0035 (Data Processing Service — definition)
• Tex. Tax Code § 151.0101(b) (Comptroller's exclusive jurisdiction to interpret taxable services)
• 34 Tex. Admin. Code § 3.342(a)(6) (Information Services — taxable examples)
• 34 Tex. Admin. Code § 3.330(a)(1) (Data Processing Services)
• STAR Accession No. 201809008L (Sept. 11, 2018); 201809009L (Sept. 11, 2018)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202206008L

Original ruling text

June 10, 2022

RE: Private Letter Ruling No. 20210419122306

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 April 14, 2021. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on whether the sale of access to a cloud-based online platform for use in university and college courses is subject to sales and use tax.

Facts Presented

** (Taxpayer) delivers its ** Experiences (Experience) via a cloud-based online platform. Experience is used by nursing and other professional healthcare students during certain assigned courses at accredited universities and colleges (Affiliated Schools). Experience can only be used by students in the Affiliated Schools’ assigned courses.

Experience consists of single-user virtual patient simulations that allow students to practice patient-centered communication, physical assessment, documentation, and clinical reasoning skills. Professors assign modules on Experience throughout a course. In each module students interact with virtual patients having different medical and sociocultural backgrounds and are given the opportunity to formulate questions and perform a series of physical examinations.

Each simulation starts with an introduction that provides the student with objectives, instructions, and expectations. Next, the student conducts a patient interview and physical assessment, documents his/her findings, and applies clinical reasoning skills to develop a diagnosis, care plan, or intervention, depending on the relevant scenario. Upon completion of the simulation, the student’s performance receives scores assessing the student’s proficiency in the exercise. The Affiliated School’s professor reviews the student’s scores to provide feedback, which are emailed to the student.

The student may then review the assessment and professor’s feedback to revisit his/her performance during the simulation and how they can improve in future patient interactions. Most professors conduct a live (in person or virtual) debrief with the students based upon the individual and class assessments from the simulation. This live instruction provides critical feedback to students to advance their development of patient care skills.

Experience maintains student performance data for modules and courses completed by students over time. All student performance data is owned and retained by the Affiliated Schools.

Experience is an entirely cloud-based software program accessed via the Internet without any local software application installed on the user’s device. In all cases, Taxpayer enters into a software service agreement with the Affiliated Schools for the sale and use of Experience.

Question, Ruling, and Analysis

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

Question: Is Taxpayer’s sale of Experience subject to sales and use tax?

Ruling: Experience is an educational service and is not subject to tax.

Analysis: The sale or use of a taxable item in this state is subject to sales or use tax. See Sections 151.051 (Sales Tax Imposed) and 151.101 (Use Tax Imposed). A taxable item includes a taxable service. Section 151.010 (Taxable Item). Taxable services include information services and data processing services. Section 151.0101(a)(10) and (a)(12) (“Taxable Services”).

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 these services, including newsletters, scouting reports and surveys, mailing lists, financial reports, and news clipping services. See Rule 3.342(a)(6).

Experience is educational and not merely the sale of information. The simulations provided by Experience instruct students on interactions with patients and provide feedback to students based on their performance. This is not the sale of general or specialized news or other current information as described by Section 151.0038.

Experience does not resemble the examples of services listed under 3.342(a)(6) that gather, maintain, or compile information for the public or for a specific segment of industry. Additionally, the Comptroller has treated similar services as nontaxable services. See STAR Accession Nos. 201809008L (Sept. 11, 2018) and 201809009L (Sept. 11, 2018). Experience is not a taxable information service.

Section 151.0035 (“Data Processing Service”) provides that a data processing service “includes word processing, data entry, data retrieval, data search, information compilation, payroll and business accounting data production, … and other computerized data and information storage or manipulation.” See also Rule 3.330(a)(1) (Data Processing).

Experience has elements of data processing. It compiles students’ responses during simulations, generates scores rating student performance, and provides the responses and scores to professors for use in providing feedback and additional instruction to students. It also maintains student performance data for completed modules and courses for the Affiliated Schools. However, the Comptroller has exclusive jurisdiction to interpret whether services are taxable under Section 151.0101(b). Experience provides educational instruction and evaluation to students for the courses provided by the Affiliated Schools. That is not a data processing service. Experience is not subject to Texas sales and use tax.

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. 20210419122306.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

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