Are an online-learning company's subscription plans and its fees for referring prospective students to universities subject to Texas sales tax?

Plain-English summary

The Texas Comptroller split an online learning platform company's revenue streams into taxable and nontaxable pieces, covering both its student subscription plans and a separate lead-generation business for universities.

Student/teacher subscription plans — split by plan. The company sold six plans (A–F): college-prep courses with tutoring and proctored exams (A), an employer-sponsored degree program (B), a course-access plan with downloadable transcripts (C), a teacher classroom-management plan (D), a lighter tutoring plan (E), and a video-lesson practice plan (F). Plans A, B, C, E, and F were not taxable — they're educational offerings, not the kind of compiled/maintained public information (like newsletters or mailing lists) that Texas taxes as an "information service." Plan D, however — used by teachers to build lesson plans, assign homework, and track student grades — is taxable as a data processing service, because those functions (storing, retrieving, compiling class/student data) are core data processing activities. Even though Plan D bundles in the same nontaxable features as Plan C, it's sold for one lump-sum price, and Texas taxes the entire charge when a mixed lump sum's taxable portion exceeds 5% of the total. Only 80% of the Plan D charge is taxed (20% is statutorily exempt).

University lead-referral fees — taxable. Separately, the company runs internet ad campaigns for nonprofit universities: it drives prospective students to a qualifying-questions page, then forwards qualified leads' information to the sponsoring university and gets paid per qualified referral. The Comptroller found this is a taxable information service — gathering and selling prospect information to a specific industry segment (universities) fits the taxable-information-service definition, consistent with a 2021 STAR ruling on similar lead-generation services. Again, only 80% of the charge is taxable.

The Comptroller also flagged that governmental entities and qualifying religious/educational/public-service nonprofits that buy Plan D or the lead-referral service can separately claim their own purchaser-side exemption, regardless of the seller-side taxability determined here.

What this means for you

EdTech and online-course platforms with mixed student/teacher offerings

Straight student-facing course access, tutoring, and assessment plans are likely nontaxable educational services — but teacher-facing classroom-management tools (gradebooks, lesson planning, student tracking) can tip into taxable data processing, especially if bundled with nontaxable content in a single lump-sum price.

Businesses running lead-generation or referral-fee programs

If you gather prospect information (through qualifying questions, surveys, or similar funnels) and sell or forward it to businesses/institutions paying for those leads, expect that to be taxed as an information service, even when your "product" also includes marketing/ad-campaign work.

Nonprofits and government entities purchasing these services

Even where the seller's product line is taxable (like the Plan D teacher tool or lead-referral fees), your organization may still separately qualify for a purchaser-side exemption under § 151.309 or § 151.310 if you're a governmental entity or qualifying nonprofit — ask your vendor to accept an exemption certificate.

Accountants and tax professionals

Watch the 5% threshold rule in Rule 3.330(d)(2): when a single lump-sum charge mixes taxable and nontaxable services, the whole charge becomes taxable if the taxable component exceeds just 5% of the total — a much lower bar than some other "entire charge taxable" rules elsewhere in Texas sales tax law.

Common questions

Q: Is an online tutoring or course-access subscription taxable in Texas?
A: Generally no, per this ruling — straightforward student-facing educational subscriptions (course access, tutoring, assessments) are not taxable information or data processing services.

Q: Is a teacher's classroom management/gradebook tool taxable?
A: Yes, if it includes lesson planning, homework assignment, and student-progress-tracking functions — those are data processing activities, and if bundled with nontaxable content in one lump-sum price, the entire charge becomes taxable once the taxable portion exceeds 5% of the total.

Q: Is selling prospective-student leads to universities a taxable service?
A: Yes. Gathering and forwarding qualified lead information to a specific industry segment (here, universities) for payment is a taxable information service in Texas.

Q: Do nonprofit or government purchasers still have to pay tax on these services?
A: Not necessarily — qualifying governmental entities and religious/educational/public-service organizations can claim a separate purchaser-side exemption even on otherwise-taxable services like these.

Q: Can I rely on this ruling for my own EdTech or lead-generation business?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific product lineup 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 § 151.010 (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 § 151.351 (Information Services and Data Processing Services — 20% exemption)
• Tex. Tax Code § 151.309 (Governmental Entities)
• Tex. Tax Code § 151.310 (Religious, Educational, and Public Service Organizations)
• Tex. Tax Code § 151.054(c) (Gross Receipts Presumed Subject to Tax)
• Tex. Tax Code § 151.104(c) (Sale for Storage, Use, or Consumption)
• 34 Tex. Admin. Code § 3.342(a)(6) (Information Services)
• 34 Tex. Admin. Code § 3.330(a)(1), (d)(2) (Data Processing Services — 5% lump-sum threshold rule)
• 34 Tex. Admin. Code § 3.322(g)(1)-(2) (Exempt Organizations)
• STAR Accession No. 201809008L (Sept. 11, 2018); 201809009L (Sept. 11, 2018); 202109061L (Sept. 30, 2021)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202206014L

Original ruling text

June 10, 2022

RE: Private Letter Ruling No. 20201207154851

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 Dec. 3, 2020 and additional information received via email on Jan. 12 and Feb. 8, 2021. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of your client’s sales of subscriptions for online learning courses. You also requested guidance on the taxability of revenue received from completing insertion orders.

Facts Presented

The facts are drawn from **’s (Taxpayer’s) information as referenced above and website last accessed on Oct. 28, 2021.

Taxpayer operates an online learning platform where students learn from thousands of on-demand digital courses. The courses stream video lessons teaching academic subjects, professional topics, and vocational licensure preparation. Taxpayer sells subscriptions to the following learning plans:

Product A, intended for college and college-bound students, includes access to digital courses, assessments, homework, online tutors, and online advisors. It also includes two online proctored exams per month in which students can choose to take and receive potential college credit. In addition, this plan provides up to ten live tutoring interactions per month;

Product B, a program intended for enterprises and other organizations to sponsor employees to earn a college degree from a partnering college. Sponsored students must apply and be accepted into a program to participate in Product B. Product B includes all features of Product A and additional guidance of an assigned live “success coach” to complete the general education course requirements through the platform. Once students have completed courses, the program assists the sponsored student with their transfer application to a partnering college;

Product C, consists of access to digital courses with assessments and up to ten live tutoring interactions per month. The product also allows students to download a pdf copy of assessments and transcripts for any course in which the student is enrolled;

Product D, also called the teacher plan, contains all the features of Product C, with additional capabilities to allow teachers to integrate Taxpayer’s platform into their curriculum. Product D includes more than 12,000 lesson plans, activities, projects, and ideas and allows teachers to create classrooms, customize lessons, and assign homework, lessons, or quizzes to their students. It includes printable assessments, worksheets, lesson transcripts and an online gradebook and dashboard to monitor student progress and scores;

Product E, includes access to digital courses and five live tutoring interactions per month. Product E does not include course quizzes or an assessment on having passed a course;

Product F, includes five live tutoring interactions per billing period, and provides access to brief video lessons and interactive questions to help the student practice the lesson.

Taxpayer also makes sales by fulfilling insertion orders for predominately not-for-profit universities. Insertion orders are part of an internet advertising campaign for the universities. Taxpayer designs content to attract individuals within a university’s desired demographic to a Taxpayer-owned website where Taxpayer hosts qualifying questions. Once an individual answers the qualifying questions, Taxpayer forwards the individual’s information to the university once the final click on the qualifying questions is made. Taxpayer is paid for a certain number of these re-directed, qualified clicks. Depending on the selections made during the qualifying question process, an individual’s information can be provided to multiple universities.

Questions, Rulings, and Analysis

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

Question One: Are Taxpayer’s subscription sales to online learning plans subject to Texas sales and use tax?

Ruling One: Taxpayer’s sales of subscriptions to Products A, B, C, E, and F are not taxable. Taxpayer’s sales of subscriptions to Product D are taxable as a data processing service. Twenty percent of the sales price of a subscription to Product D is exempt.

Analysis for Ruling One: Texas imposes 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. Information services and data processing services are taxable services. Section 151.0101(a)(10), and (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).

Products A, B, C, E, and F do not resemble the types of services described in Rule 3.342(a)(6) and are not taxable information services. Taxpayer does not gather, maintain, or compile information for its customers. Based on the examples in Rule 3.342, Products A, B, C, E, and F are also not general or specialized news or other current information. The Comptroller has treated these kinds of services as nontaxable services. See STAR Accession Nos. 201809008L (Sept. 11, 2018) and 201809009L (Sept. 11, 2018).

Unlike Taxpayer’s other subscription plans, Product D is a taxable data processing service. Section 151.0035 (“Data Processing Service”) provides that a data processing service “includes word processing, data entry, data retrieval, data search, information compilation. . . and other computerized data and information storage or manipulation.” Rule 3.330(a)(1) (Data Processing Services) further states that data processing is “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information. It specifically includes word processing, payroll and business accounting, and computerized data and information storage or manipulation.”

Product D is used by teachers to manage their classroom and curriculum. It allows teachers to customize lessons, schedule instruction, assign homework and assessments, and maintain and track student grades and progress. These functions involve the storage, retrieval, and compilation of data and information related to lessons and students. These functions are all elements of data processing described in Section 151.0035. Although Product D includes the nontaxable services in Product C, it is sold for one lump sum charge. When a single charge is made for both taxable and nontaxable services, the entire charge is presumed taxable if the taxable charge exceeds 5 percent of the total charge. Rule 3.330 (d)(2). As a result, the total charge for Product D is taxable.

Twenty percent of the sales price of data processing services is exempt from tax. Section 151.351 (Information Services and Data Processing Services). Taxpayer is responsible for collecting and remitting tax on 80 percent of the charge for Product D.

Question Two: Are Taxpayer’s sales from completing insertion orders subject to Texas sales and use tax?

Ruling Two: Taxpayer’s sales from completing insertion orders are subject to sales tax as an information service. Twenty percent of the sales price is exempt.

Analysis for Ruling Two: Information services are taxable in Texas. See Analysis of information services in Question One. Taxpayer’s insertion orders involve the gathering and forwarding of prospective student information to universities who pay for marketing leads on prospective students. The information is gathered and sold to the public or to a specific segment of industry and is a taxable information service as described by Rule 3.342(a)(6). The Comptroller has previously determined similar online lead generating services to be taxable information services. See STAR Accession No. 202109061L (Sept. 30, 2021).

Section 151.351 exempts 20 percent of the sales price of information services. Taxpayer is responsible for collecting and remitting tax on 80 percent of the charge for insertion orders.

Although Product D and the insertion orders are taxable as data processing services and an information service respectively, an exemption may still apply. Sections 151.309 (Governmental Entities) and 151.310 (Religious, Educational, and Public Service Organizations) provide an exemption for taxable items sold, leased, or rented to, or stored, used, or consumed by, certain governmental entities and religious, educational, and public service organizations. See also Sections 151.054(c) (Gross Receipts Presumed Subject to Tax) and 151.104(c) (Sale for Storage, Use, or Consumption); Rule 3.322(g)(1) and (2) (Exempt Organizations). As such, a purchaser of Product D or the insertion orders that is either a governmental entity or an exempt organization as defined in Sections 151.309 or

151.310 may claim an exemption on purchases from Taxpayer.

Comptroller’s Decisions and 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. 20201207154851.

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.