Did using a computer make financial statements and tax-return preparation taxable data processing, and which computer services were taxable?

Plain-English summary

The Comptroller said using a computer to develop financial statements and prepare printed tax returns did not make the charges taxable where the provider had to apply accounting principles and tax-law knowledge. Those were professional accounting services, and the computer's use was incidental.

Taxable data processing included word processing, payroll and business-accounting data production, and computerized data or information storage. The letter also classified accounts-receivable billing, payroll-check writing, accounts-payable check preparation, computer hardware, software, and repair services as taxable.

What this means for you

The historical distinction was not simply whether a computer was used. It was whether the customer purchased professional accounting expertise or data-processing and computer-related products or services.

Common questions

Were computer-produced financial statements taxable? No, when preparing them required accounting expertise.

Were printed tax returns taxable? No, under the same professional-service reasoning.

What processing tasks were taxable? The letter named word processing, payroll and business-accounting data production, storage, billing, and check preparation.

Were hardware, software, and repair services taxable? Yes, according to the letter.

Citations and references

• The letter refers to an enclosed draft proposed rule on data-processing services but does not identify a final rule number in the body.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0848G12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller December 3, 1987

Dear *:

I received your letter requesting information on the newly taxable data
processing services.

I understand you use the computer to develop financial statements and to
prepare printed tax returns. In situations like this where you must
apply
your knowledge of accounting principles and tax law, you are providing
professional accounting services. The computer is a tool to provide that
service. It's use is incidental to your service. Sales tax is not due
on
your charges for these accounting services.

"Taxable data processing services" does include word processing services,
payroll and business accounting data production, and computerized data
and
information storage. Your client should collect tax on charges for
accounts
receivable billing, payroll check writing and accounts payables check
preparation as well as the sale of computer hardware, software and repair
services.

I am enclosing a draft copy of our proposed rule on data processing
services.
It has been sent to various industry groups for review and comment.
Please
let me know if you have any comments.

This opinion is based upon the facts you presented. If there are
additional or
different facts, this opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Adina Whittemore
Tax Policy Division