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Ezel / Tax Rulings / TX
TX 8802L0854E04 Sales and/or Use Tax (State,Local,MTA) 1988-02-02

Which computer consulting, programming, software sale, installation, training, maintenance, and client-data processing charges were taxable?

Short answer: Consulting about data-processing needs and creating or modifying third-party programs were not taxable. Completed program sales, leases, or licenses and related modification, installation, and maintenance were taxable; separately stated instruction was not.

Apply this to your situation

This page answers the general question as of 1988. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1988
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a taxpayer-specific February 1988 Texas Comptroller letter applying data-processing rules effective January 1, 1988. It says the opinion may change if the facts differ. Computer consulting, custom and canned software, program creation and modification, licensing, installation, maintenance, instruction, and client-data processing rules have materially evolved; verify current law and delivery method. STAR documents may no longer represent current policy even when not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The Comptroller said consulting about a client's current or future data-processing needs was not taxable. Creating a program, or modifying an existing program that the modifier had not sold, was also not taxable.

By contrast, selling, leasing, or licensing a completed program was taxable whether the program was off-the-shelf or customized. Modification, installation, and maintenance charges connected with that software transaction were included in the taxable amount.

Separately stated instruction on using the software was not taxable. Processing a client's data was taxable as of January 1, 1988.

What this means for you

The historical classification depended on whether the provider was giving advice or standalone programming, selling or licensing a completed program, or processing client data. Separately stating instruction also mattered.

Common questions

Was consulting about computer needs taxable? No.

Were customized programs taxable when sold or licensed as completed software? Yes.

Were installation and maintenance connected with the software sale taxable? Yes.

Was separately stated user instruction taxable? No.

Citations and references

  • 34 Tex. Admin. Code Rule 3.308 — Hardware, Software, Services and Sales.
  • 34 Tex. Admin. Code Rule 3.330 — Data Processing Services.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller February 2, 1988

Dear **:

On behalf of Mr. Bullock, I hope you'll accept my apology for the delay
in answering your question involving changes in the sales tax law. Our people
were, and still are, swamped by a deluge of inquiries as they attempted to
interpret provisions of the new law and draft rules which would not adversely
impact businesses. In many instances, an answer to a question just wasn't
available when the question arrived.

Consulting services that relate to current or future data processing
needs are not taxable. Charges to create a computer program or modify an
existing computer program not sold by the person doing the modification are
also not taxable.

Sales tax is due on the sale, lease or license of a completed computer
program, whether off-the-shelf or customized. The taxable charge includes any
modification, installation, or maintenance charges made in connection with the
sale of the program. Separately stated charges for instruction on the
software's use will not be taxable. Charges for processing a client's data are
taxable as of January 1, 1988.

I have enclosed copies of Comptroller Rules 3.308 - Hardware, Software,
Services and Sales, and 3.330 - Data Processing Services, along with tax
bulletins for your information.

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

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,
F. Wayne McDonald
Tax Policy Division

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