Texas Letter Ruling 9211L1211C11: Electronic Bulletin Boards Service — Access To Technical/Shareware Library And Ability To Leave/Retrieve Messages/Chat 'Live'/Trade Goods

Plain-English summary

A business ran a computer bulletin board service (BBS): people connected with their own computer and modem, got some free time, and could then pay a membership fee for continued access. Paying members could chat "live" with other users online, access databases with general information, and download software from the operator's library of public-domain software. The operator asked the Comptroller whether it needed to charge sales tax on this service.

The Comptroller said yes. The letter reasons that Texas defines "telecommunication services" broadly, as the electronic or electrical transmission, conveyance, routing, or reception of sounds, signals, data, or information over wires, cables, radio waves, microwaves, satellites, fiber optics, "or any other method now in existence or that may be devised" -- and that this definition is not limited to telephone companies. Because the BBS operator was conveying and receiving data, information, and software electronically, the Comptroller classified the membership charge as a taxable telecommunication service under Rule 3.344, and told the operator to collect tax on it.

The Comptroller also noted the standard caveat: the answer is based on the facts described in the request, and could change if the facts are different.

What this means for you

BBS and online-service operators (in 1992-era terms)

If you charged a fee for people to dial into your system and chat, browse databases, or download software, the Comptroller treated that fee as taxable telecommunication service revenue under Rule 3.344 -- not as a nontaxable information or data-processing service. The free introductory access described in the letter didn't change the analysis; it was the paid membership access that was taxed.

Accountants and tax professionals

Note how thin the reasoning is: the letter leans entirely on the breadth of the telecommunication-services definition ("any other method now in existence or that may be devised") to pull a dial-up BBS into Rule 3.344, without separately analyzing the software-download or database-access components. This is a 1992 letter about pre-internet dial-up bulletin board technology; treat it as historical context on how Texas first approached online services, not as current guidance, since STAR letters can become outdated and this one is not shown here as reaffirmed.

Businesses offering mixed online services today

The letter illustrates that Texas has long been willing to characterize an online access fee as a taxable telecommunication service when the service's core function is electronically conveying and receiving data. Anyone relying on this reasoning for a modern service should get a current ruling, since the letter itself says it is based only on the facts presented and could change on different facts.

Common questions

Q: What service was at issue in this ruling?
A: A computer bulletin board service (BBS) that users accessed by computer and modem. Basic access was free; a membership fee unlocked live chat with other users, access to general-information databases, and downloads from a public-domain software library.

Q: Did the Comptroller require tax on the whole service or just the paid membership?
A: The letter addresses "the charge for the service" generally and concludes the operator "is required to collect tax on the charge for the service." The ruling doesn't separately break out tax treatment for the free introductory access versus the paid membership.

Q: Why was a BBS treated as a telecommunication service instead of something else?
A: Because Texas's definition of telecommunication services covers the electronic transmission, conveyance, routing, or reception of sounds, signals, data, or information by any method -- not just telephone service -- and the Comptroller found that the BBS operator was electronically conveying and receiving data, information, and software.

Q: Can I rely on this letter for my own online service today?
A: No, not directly. It was issued to one taxpayer based on the facts in their November 10, 1992 letter, and the Comptroller states the opinion could change with different facts. It also predates modern internet services by years, so its application to today's technology and rules is not something this letter itself addresses.

Citations and references

Rules cited:

• Rule 3.344, Telecommunication Services

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1211C11

Original ruling text

November 30, 1992

Dear ***:

Thank you for your letter of November 10, 1992, concerning the taxability of
providing computer bulletin board services (BBS). As I understand it,
interested parties access the BBS via their computer and modem. You provide
some free time and if the person wishes to join, he pays a membership fee for
further access to the BBS. For the cost of the membership, persons may chat
"live" with other users on line, access databases containing general
information, or download software though your library of public domain
software. You question whether you should charge tax for providing this
service.

Telecommunication services are defined as the electronic or electrical
transmission, conveyance, routing, or reception of sounds, signals, data, or
information utilizing wires, cables, radio waves, microwaves, satellites, fiber
optics or any other method now in existence or that may be devised. The
provision of these types of services is not restricted solely to telephone
companies. Since you are providing a service whereby data, information, and
software can be conveyed and received electronically, your service is taxable
as a telecommunication service. You are required to collect tax on the charge
for the service as outlined in Rule 3.344, Telecommunication Services.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

If you have any questions or need additional information, you may call toll
free 1-800-531-5441, ext. 50037 or the regular Austin number is 512-475-0037.
You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division