Is the license and service fee a company pays to access training materials (books, videotapes, videodiscs, software) subject to Texas sales tax?

Subject

Training Materials (Books, Videotapes, Videodiscs, Software) — Taxability Of License And Service Fees To Access Material

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1263A01

Plain-English Summary

A taxpayer asked the Comptroller about the taxability of a license and related service fee. The fees are paid so a company (referred to as "ABC CO.") may access training materials to educate and develop its employees. Those materials include books, video tapes, videodiscs, CD-ROMs, and computer-based training materials.

The letter's answer is straightforward: when ABC CO. uses the training materials to train its own employees, the provider of the materials must collect tax from ABC CO. on the license and service fee. The license/service fee for accessing the material is treated as a taxable charge.

The letter also addresses a related scenario — where a training group both delivers the training to ABC CO.'s employees and separately bills a license and service fee for the materials. In that case, the training group must collect tax from ABC CO. on the separately stated license and service fees, but the charge for the training itself is not taxable.

What This Means For You

If you sell or license training materials (books, videos, videodiscs, software, CD-ROMs): The license and service fee you charge a business customer to access those materials is taxable, and you are responsible for collecting the tax from your customer.

If you also provide the actual training/instruction: Structure your invoice to separately state the charge for delivering the training from the charge for the license/service fee to access the materials. Per this letter, the separately stated training charge is not taxable, while the separately stated license and service fee is taxable.

If you are the purchasing business (like "ABC CO." in this letter): Expect your training-materials provider to charge you sales tax on the license and service fee portion of the arrangement, regardless of whether the provider also delivers the training.

Q&A

Q: Is the license fee to access training materials like books, videotapes, and software subject to Texas sales tax?
A: Yes. The letter states that when ABC CO. uses the training materials to train their employees, the provider of the materials must collect tax from ABC CO. on the license and service fee.

Q: What kinds of training materials does this ruling cover?
A: The letter lists books, video tapes, videodiscs, CD-ROMs, and computer-based training materials.

Q: If a company both trains our employees and separately charges for the license/service fee, is the whole invoice taxable?
A: No. Per the letter, the training group is required to collect tax on the separately stated license and service fees, but the charge for training is not taxable.

Q: Does this letter apply beyond the specific facts described?
A: The letter notes that this opinion is based on the facts presented, and that if there are any additional or different facts, the opinion may change.

Original ruling text

October 5, 1993

Dear *****:

Thank you for your letter of September 14, 1993, regarding the
taxability of a license and related service fee. The license and service fees
are paid so ****(ABC CO.) may access training materials to educate
and develop employees. The training materials include books, video tapes,
videodiscs, CD-ROMs, and computer-based training materials.

When ABC CO. uses the training materials to train their employees, the
provider of the materials must collect tax from ABC CO. on the
license and service fee.

If the training group trains ABC CO.'s employees and has a
separate charge for the license and service fees, the training group is
required to collect tax from ABC CO. on the separately stated license and
service fees. The charge for training is not taxable.

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

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

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9308122L.2 and/or 9308122L