Is scanning a document with an OCR scanner and saving it to a diskette a taxable service in Texas?

Subject

Scanning Services/Electronic Imaging Services — Documents/Plans/Blueprints

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9401L1282B08

Plain-English Summary

A taxpayer asked the Comptroller whether OCR (optical character recognition) scanning services are taxable. The taxpayer's business model was to use a document scanner to scan a customer's document, save it to a computer diskette, and return both the original documents and the diskette to the customer, charging around $1 per document scanned.

The Comptroller ruled that OCR scanning services are taxable data processing services. Rule 3.330(a), concerning data processing services, defines that category to include the maintaining, entering, or retrieving of information. The Comptroller reasoned that OCR scanning is simply the entry of information through a machine scanning process rather than through manual data entry, so it falls within the same taxable category as traditional data entry.

What This Means For You

If you provide document scanning or electronic imaging services: Charging customers to scan documents, plans, or blueprints and convert them into electronic files is treated as a taxable data processing service in Texas, just like manual data entry. You should be collecting and remitting Texas sales tax on these charges.

If you purchase scanning services: Expect the vendor to charge Texas sales tax on the scanning fee, since the Comptroller treats this as taxable data processing rather than a nontaxable service.

Keep in mind: This ruling is based on the specific facts described — scanning a document and saving it to a diskette for return to the customer. The Comptroller noted that different or additional facts could change the outcome, so businesses with a different scanning arrangement (for example, one bundled with other nontaxable services) should confirm their own situation.

Q&A

Q: Is scanning documents with an OCR scanner and saving them to a diskette taxable in Texas?
A: Yes. The Comptroller ruled that this is a taxable data processing service because OCR scanning is a form of entering information, which is covered by Rule 3.330(a)'s definition of data processing services.

Q: Why does the Comptroller treat scanning the same as manual data entry?
A: Because Rule 3.330(a) defines data processing services to include the maintaining, entering, or retrieving of information, and the Comptroller viewed OCR scanning as "simply the entry of information through a machine scanning process rather then [sic] data entry" — i.e., a different method of accomplishing the same taxable activity.

Q: Does this ruling apply no matter how a scanning business operates?
A: Not necessarily. The Comptroller explicitly stated the opinion is based on the facts presented, and that additional or different facts could change the result.

Citations

• 34 Tex. Admin. Code Rule 3.330(a) (defining data processing services to include the maintaining, entering, or retrieving of information)

Original ruling text

January 10, 1994

Dear **:

Thank you for your letter of January 2, 1993, concerning the
taxability of OCR scanning services.

You will use a document scanner to scan a document and save it
to a computer diskette. You will return the documents and
diskette to your customer and collect a fee of around $1 per
document scanned.

OCR scanning services are taxable data processing services.
Enclosed Rule 3.330(a), concerning data processing services,
includes the maintaining, entering or retrieving of information.
OCR scanning is simply the entry of information through a
machine scanning process rather then data entry.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The
direct line is 512/475-0613. You may also write to Tax
Administration Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

NOTE: Previous Accession Number 9402025L.2 and/or 9402025L