Does a research and development joint venture's purchase of software with a useful life over six months qualify for the Texas Section 151.348(b) sales tax exemption?

Plain-English summary

The Texas Comptroller ruled that a company organized as a joint research and development venture — the kind of venture defined in the federal National Cooperative Research Act, 15 U.S.C. Section 4301 — can buy software exempt from Texas sales tax, as long as the software has a useful life of more than six months.

The company had been treating its capital purchases as exempt under Tax Code Section 151.348(b), which exempts research and development joint ventures from tax on purchases of taxable items with a useful life over six months. During a sales tax audit, the question came up specifically for software: does purchased or modified software that stays in service more than six months count as one of those exempt "taxable items"? The Comptroller's answer was straightforward: yes, software meeting the six-month useful-life test qualifies for the Section 151.348(b) exemption, just like other equipment and materials.

The Comptroller noted the ruling was based on the specific facts presented, and that other, even similar, facts could lead to a different result.

What this means for you

Research and development joint ventures

If your organization qualifies as a joint research and development venture under 15 U.S.C. Section 4301, this ruling confirms that software purchases — not just physical equipment or materials — can fall within the Section 151.348(b) exemption, provided the software will be used for more than six months. That matters for capital budgeting and for how you document exemption claims on invoices and resale/exemption certificates.

Accountants and tax professionals advising R&D ventures

When reviewing a client's exemption position under Section 151.348(b), don't limit your analysis to tangible equipment. This ruling shows the Comptroller reads "taxable items" broadly enough to include software, so long as the useful-life test is met. Because the exemption turns on useful life rather than the nature of the property, be prepared to document and support the expected service life of software purchases, especially ahead of an audit.

Businesses undergoing a sales tax audit

This ruling arose because an audit raised the software exemption question. If your R&D joint venture is being audited and software purchases are at issue, this letter is a useful reference point for the position that software with a useful life over six months qualifies — though remember it binds the Comptroller only for the specific taxpayer who received it.

Common questions

Q: What kind of entity does the Section 151.348(b) exemption apply to?
A: It applies to entities that qualify as a "joint research and development venture" as defined by the federal National Cooperative Research Act, 15 U.S.C. Section 4301.

Q: Does the exemption cover all purchases, or only certain ones?
A: It covers taxable items with a useful life in excess of six months. The ruling confirms software fits within that category when it meets the six-month useful-life criteria.

Q: Does software have to be off-the-shelf to qualify, or can modified software qualify too?
A: The taxpayer's letter described "software purchased or modified" that would be in service more than six months, and the Comptroller's response did not distinguish between off-the-shelf and modified software — the operative test is the useful-life requirement.

Q: Can I rely on this letter for my own company's software purchases?
A: Not directly. Under STAR's rules, a letter ruling can support a detrimental-reliance claim only for the taxpayer it was issued to, and it may not reflect current Comptroller policy. Similar facts could still produce a different result, as the letter itself notes. Get your own ruling or advice from a Texas tax professional if you want certainty.

Q: Who signed the ruling and what office issued it?
A: The ruling was issued by the Comptroller's Tax Administration Division (Tax Policy Division), signed by Gilbert Zamora, on August 12, 1992, in response to a taxpayer request dated July 24, 1992.

Citations and references

• Tex. Tax Code § 151.348(b) (exemption for research and development joint venture purchases with useful life over six months)
• 15 U.S.C. § 4301 (federal definition of a joint research and development venture, National Cooperative Research Act)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208297L

Original ruling text

August 12, 1992

Dear **:

Thank you for your recent letter regarding ** (COMPANY) exemption
for software with a useful life in excess of six months under Sec. 151.348(b)
of the Texas Tax Code.

COMPANY as a joint research and development venture defined by 15 U.S.C.
Section 4301, is exempted from sales tax on the purchase of taxable items
having a useful life in excess of six months. Software meeting the six month
useful life criteria will qualify for exemption under Sec. 151.348(b).

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information, you may call me at
1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

July 24, 1992

Tax Administration - Tax Policy Division
Capital Station
Austin, Texas 78774

Dear Sirs,

The purpose of this letter is to request a written policy statement clarifying
the taxability of items purchased. ** (COMPANY) qualifies for sales
and use tax exemption under Section 151.348(b) and has applied that exemption
to capital purchases. In a recent Sales Tax audit it has been brought to our
attention that purchases with a useful life in excess of six months when placed
in service by a research and development venture are exempt.

After reviewing the code our position is that software purchased or modified
that will be in service in excess of six months qualifies for this exemption.

If you have any questions regarding this inquiry please contact **
at **.

Sincerely,

Corporate Controller