Did taxable data processing qualify for Texas manufacturing exemptions because it produced printed reports or other physical results?

Plain-English summary

Manufacturing exemptions required manufacturing or processing tangible personal property for sale. The Comptroller said data processing did not meet that standard.

Even before data processing became taxable, the essence of the transaction was the service rather than its printed report. The provider therefore did not tax the physical report and did not receive manufacturing exemptions.

After data processing became a taxable service, the provider collected tax on the service's selling price, but that change still did not make the provider a manufacturer or processor of tangible personal property for sale.

What this means for you

Producing a report or other physical output did not convert a data-processing service into manufacturing. Taxability of the service and eligibility for input exemptions were separate questions.

Common questions

Was data processing taxable? Yes at the time of the letter. Did a printed report make it manufacturing? No. Could the provider claim manufacturing exemptions? No.

Citations and references

• The letter does not identify a numbered statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9111L1140D06

Original ruling text

November 20, 1991

Dear ****:

You asked whether data processing was "processing" in terms of qualifying
for sales tax exemptions. In order to qualify for the manufacturer's
exemptions, the taxpayer must be manufacturing---or processing--tangible
personal property for sale. In the past, (before data processing became a
taxable service) we did not tax the physical result of the processing service.
The essence of the transaction was the service, not the printed report. The
data processing company did not collect tax on the report, and it did not
qualify for the manufacturer's exemptions.

Of course, these days data processing is a taxable service, and the
company collects tax on the selling price of the service. But the
manufacturer's exemptions are still not available to service providers. Those
exemptions are restricted to folks that manufacture or process tangible
personal property for sale.

Please let me know if you have any questions. My number is 1-800-531-5441
ext. 3-4614.

Sincerely,

Adina Whittemore
Tax Administration Division