Does a Colorado-based securities broker-dealer and investment adviser owe Texas sales tax on its securities sales, commissions, and investment advice to Texas clients?

Plain-English summary

The Texas Comptroller responded to a Colorado-based securities broker-dealer and investment adviser that occasionally sells securities and gives investment advice to Texas residents, with all orders accepted and processed through its Colorado home office and no branch office in Texas.

The Comptroller's answer had three parts:

1. Securities trades and commissions are not taxable at all. The sale or purchase of securities on behalf of a Texas client, and the commissions earned on those trades, do not constitute transactions subject to Texas sales or use tax.
2. Investment advice is generally not taxable either — but there's an exception. If the "advice" is really information that is gathered, maintained, or compiled and made available to the public or to a specific segment of an industry for a fee, then it is a taxable information service under 34 Tex. Admin. Code Rule 3.342 (Information Services), section (b) of which lists examples of taxable information services.
3. Even taxable services only create a collection duty if the seller is "engaged in business" in Texas. The letter refers the taxpayer to an enclosed September 1992 Sales Tax Bulletin describing what activities count as being "engaged in business" in the state.

The Comptroller noted this opinion is based on the facts presented, and that other, similar-looking facts could lead to a different result.

What this means for you

Securities brokers and investment advisers

If you sell securities to Texas clients and earn commissions on those trades, Texas does not treat those transactions as taxable sales or use tax events. Giving investment advice for a fee is likewise generally not a taxable service — unless what you're really selling is compiled or packaged information made available to the public or an industry segment for a fee, which Texas treats as a taxable "information service" under Rule 3.342(b).

Out-of-state firms with occasional Texas customers

Even if some of what you sell would otherwise be taxable, you only have to collect and report Texas tax if you are "engaged in business" in Texas. This letter doesn't spell out that standard itself — it points the taxpayer to a separate enclosure (the September 1992 Sales Tax Bulletin) for the specific activities that trigger that status. If you have no Texas branch office and all orders are processed out of state, that's a relevant fact, but you should check the current nexus rules rather than rely solely on this 1993 letter.

Common questions

Q: Does Texas charge sales tax on commissions from selling securities?
A: No. According to this letter, the sale or purchase of securities on behalf of a Texas client, and the commissions from those sales or purchases, are not transactions subject to Texas sales or use tax.

Q: Is investment advice taxable in Texas?
A: Generally no. Providing investment advice to clients for a fee is not a taxable transaction — unless the "advice" is actually information gathered, maintained, or compiled and made available to the public or to a specific industry segment for a fee, in which case it's a taxable information service under Rule 3.342(b).

Q: If some of my services are taxable, do I automatically have to collect Texas tax?
A: No. You'd only be required to collect and report Texas tax if you are "engaged in business" in Texas. The letter refers to a September 1992 Sales Tax Bulletin for what activities meet that standard, rather than defining it in the letter itself.

Q: Can I rely on this letter for my own business?
A: Only if you are the taxpayer it was issued to. Letters like this are based on the specific facts presented, and the Comptroller expressly notes that "other facts though similar may provide a different result." See the disclaimer above.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.342 (Information Services), specifically section (b), which the letter cites for examples of taxable information services

The letter also references an enclosed "September 1992 Sales Tax Bulletin" describing activities that constitute being "engaged in business" in Texas, but that bulletin is not a numbered statute or rule and its text is not reproduced here.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1222C13

Original ruling text

February 16, 1993

Dear ***:

This is in response to your letter concerning the taxability of the
services provided by ***.

FACTS

*** is a securities broker-dealer and investment adviser
currently registered with the National Association of Securities
Dealers and with the State of Texas. ** is also registered
with Texas as a foreign corporation dba * and files a Texas
corporation franchise tax report. * product (sale of
securities and investment advice) is occasionally sold to Texas
residents, all orders are accepted and processed through *
home office in *, Colorado. **** does not
currently have a branch office in Texas.

RESPONSE

The sale or purchase of securities on behalf of a Texas client and the
commissions derived from those sales or purchases do not constitute
transactions that are subject to Texas sales or use tax.

Generally, providing investment advice to clients for a fee is not a
taxable transaction. However, if the "advice" is in the form of
information which is gathered, maintained, or compiled and made available
by the provider of the information service to the public or to a specific
segment of industry for a consideration, then it is subject to sales tax.
I have enclosed a copy of Rule 3.342 Information Services, section (b)
of which describes some examples of taxable information services.

If *** provides taxable services to clients in Texas, it would
be required to collect and report tax only if it is engaged in business
in this state. Activities which constitute "engaged in business" in Texas
are described in the enclosed September 1992 Sales Tax Bulletin.

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
1-800-531-5441, 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