Does a business that sells computer-generated Lotto number picks based on statistical analysis of past winning numbers have to collect Texas sales tax?

Plain-English summary

The Texas Comptroller's Tax Administration Division answered a taxpayer who had started a new business selling a "systems approach" to picking Lotto numbers. The service analyzed past winning numbers, "due & hot" numbers, sequences, indexing, and percentages of called numbers, and ran that data through an algorithm so a computer could generate random-seeming number selections. Customers received game cards, each with a series of six numbers, and could buy five games (30 numbers) for $3.00.

The Comptroller classified this as an information service — selling the output of collecting, compiling, and analyzing data — rather than as, say, a nontaxable gambling activity or something else. Because information services are taxable in Texas, the letter told the taxpayer to get a sales tax permit and to collect and remit sales tax on sales of the number-selection service. The Comptroller included a sales tax packet to help the taxpayer get set up.

The letter also notes the standard caveat: the opinion is based only on the facts described, and if the actual facts differ, the answer could change.

What this means for you

Business owners selling data, tips, or "systems" services

If your product is fundamentally the delivery of analyzed or compiled information — whether it's a number-picking system, statistical reports, or similar output derived from crunching existing data — the Comptroller treats that as a taxable information service in Texas. This letter shows the Comptroller applying that treatment even to a fairly novel or unusual product (a lottery number-picking system), which suggests the classification is applied broadly to "information as a product" business models.

Accountants and tax professionals advising new service businesses

When a client's new business boils down to analyzing data and selling the resulting picks, recommendations, or reports, flag the information-services angle early. This letter is a real-world example where the Comptroller required permitting and tax collection for exactly that fact pattern, without pointing to a specific statute or rule in the letter itself.

Common questions

Q: What made this a taxable "information service" rather than something else?
A: The taxpayer's own description — using past winning numbers, statistical patterns, and an algorithm to generate number selections that were then sold to customers on game cards — was treated by the Comptroller as delivering compiled and analyzed information as the product, which is how it reached the information-service classification.

Q: Does this letter cite a specific statute or rule for that conclusion?
A: No. The original ruling text does not cite any statute, rule, or code section; it simply states the conclusion that the described service is an information service requiring a sales tax permit.

Q: What did the taxpayer have to do as a result?
A: Obtain a Texas sales tax permit and collect and remit sales tax on the charges for the number-selection service. The Comptroller enclosed a sales tax packet to help with that process.

Q: Can another business rely on this letter for its own numbers-related service?
A: Only the original taxpayer can rely on this specific letter, and only for the facts as described. Businesses with different facts (different data sources, different product formats, etc.) would need their own ruling or should consult a tax professional, since the letter also warns that its conclusion could change if the facts are different.

Citations and references

No statutes or rules are cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1222A01

Original ruling text

February 16, 1993

Dear ***:

Thank you for your letter regarding your new business service.

You state that you use a systems approach to select numbers for playing
the *** Lotto game. By analyzing past winning numbers, "due & hot"
numbers, sequences, indexing, percentages of called numbers and a powerful
algorithm, a computer selects random numbers. Game cards are made up,
each containing a series of six (6) numbers. A customer may purchase 5
games (30 numbers) for $3.00.

Based on your description of your service, you are providing an
information service. You are required to hold a sales tax permit and
collect and remit sales tax. I am enclosing a sales tax packet for your
convenience.

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialist toll free at
1-800-252-5555.

Sincerely,

Jo Hale
Tax Administration Division