If I provide answering services (human or automated) to Texas customers from a location in Arkansas, do I owe Texas tax, and do I have to collect it from my customers?

Subject

Answering Services From Out Of State — Human Or Automated — Taxability And Use Tax Collection Duty

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9311L1267D13

Plain-English Summary

A taxpayer providing answering services from a location in Arkansas wrote to the Comptroller asking about the Texas tax treatment of that service. The taxpayer's letter did not say whether the answering service was human-staffed or automated, but the Comptroller's response makes clear it didn't matter: either type of answering service would be subject to sales tax if the provider were located in Texas.

Since the provider is actually located in Arkansas rather than Texas, the question becomes whether the provider must collect Texas Use Tax from its Texas customers. The Comptroller's answer turns on a single test: whether the provider is "engaged in business in Texas" as defined in Subsection (a) of Rule 3.334. If the provider meets that test, it must collect Texas Use Tax from its Texas customers. If it does not meet that test, the collection duty shifts — Texas customers are instead required to pay the use tax directly to the Comptroller's office themselves.

The letter closes with the Comptroller's standard caveat that the opinion is based only on the facts submitted, and that other, even similar, facts could produce a different result.

What This Means For You

If you provide answering services (human or automated) to Texas customers from outside Texas: The nature of the service — whether staffed by people or automated — does not change the taxability conclusion in this letter; the Comptroller treated both the same way.

The key question for your own collection obligation is whether you are "engaged in business in Texas" under Subsection (a) of 34 Tex. Admin. Code Rule 3.334. This letter does not spell out what that subsection requires (it simply refers to "the enclosed Rule 3.334," which was attached to the original letter but is not reproduced in the STAR text), so you would need to review Rule 3.334(a) itself, or consult a Texas tax professional, to determine whether your specific business activities meet that standard.

If you are engaged in business in Texas under that rule, you must collect Texas Use Tax from your Texas customers. If you are not, the letter states that your Texas customers are themselves required to pay the use tax directly to the Comptroller.

Q&A

Q: Does it matter whether an answering service is staffed by humans or is automated, for Texas tax purposes?
A: No — according to this letter, either type of service would be subject to sales tax if the provider were located in Texas. The letter draws no distinction in taxability between human and automated answering services.

Q: The answering service is provided from Arkansas, not Texas. Does that mean no Texas tax applies?
A: Not necessarily. The location of the provider affects who has to collect the tax, not whether the underlying service would be taxable. The provider must collect Texas Use Tax from its Texas customers if it is "engaged in business in Texas" as defined in Subsection (a) of Rule 3.334.

Q: What happens if the out-of-state provider is not "engaged in business in Texas" under Rule 3.334(a)?
A: Then, per this letter, the Texas customers are required to pay the use tax directly to the Comptroller themselves, rather than the provider collecting and remitting it.

Q: Can this taxpayer rely on this letter if their facts change slightly?
A: The letter itself cautions that it is "rendered based on the facts you submitted" and that "other facts, though similar, may yield different results" — so a materially different fact pattern could lead to a different answer.

Original ruling text

November 3, 1993

Dear *****:

Thank you for your recent letter regarding the provision of answering
services from a location in the state of Arkansas. You did not mention
if you were providing human or automated answering service, however,
either type service would be subject to sales tax if you were
located in Texas.

You are required to collect Texas Use Tax from your Texas customers if
you are engaged in business in Texas as defined in Subsection (a) of
the enclosed Rule 3.334. Otherwise, they are required to pay it
directly to this agency.

This opinion is rendered based on the facts you submitted. Other
facts, though similar, may yield different results.

If you have questions or need more information, please call or write.
You may reach me by calling toll free, (800) 531-5441 (ext. 34680).
My direct line number is (512) 463-4680. The number for FAX
transmissions is (512) 475-0900. You may write to me in care of Tax
Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9311002L.2 and/or 9311002L