Is telephone or on-site technical support for software taxable in Texas, and can a contractor providing that support staff to a company accept a resale certificate instead of charging tax?

Plain-English summary

This is a combined pair of letters from the Texas Comptroller's Tax Administration Division (both signed by Al Van Allen), with the later letter (August 1, 1995) amending the earlier one (July 17, 1995) after the Comptroller reviewed Administrative Hearing No. 32,349 on telephone technical support.

The amended, controlling position is: charges for telephone technical support of tangible personal property are subject to Texas sales and use tax if the service is provided to a recipient in Texas. The service can still be purchased tax-free for resale if the buyer is reselling that support to its own customers.

The original July 17 letter answers two nearly identical fact patterns involving a staffing/contracting arrangement:

• Company A (a Texas corporation) contracts with Company B (a Texas corporation) for Company B to provide technical staff — either off-site at Company A's facility, or on-site at Company B's facility — to give telephone technical support for Company A's products. In both scenarios, Company A supplies the equipment and direct supervision for the technical contractors.
• The question in both scenarios: does Company B charge Company A Texas sales tax on the technical staff it provides?
• The answer in both scenarios is the same: if Company A provides technical support for software, Company A may accept a resale certificate from Company B in lieu of tax. If Company A provides technical support for products other than software, Company B's charges are not taxable, and no resale certificate is necessary.

The letter notes this opinion is based on the facts submitted and that other, similar facts could yield different results. It also references a prior accession number, 9508416L, for this same correspondence.

What this means for you

Businesses that provide telephone technical support

If you provide telephone technical support for tangible personal property (such as software) to a customer located in Texas, that charge is generally subject to Texas sales and use tax. If you are instead reselling that support service to your own customers, you can purchase the underlying support tax-free by issuing a resale certificate to your supplier.

Companies that contract with a staffing/technical services provider

If you contract with another company to provide technical staff (on-site or off-site) who deliver telephone technical support for your products, whether you can accept a resale certificate instead of paying tax depends on what the support is for: software support can be purchased for resale (accept a resale certificate from your provider), while support for non-software products is simply not taxable in this arrangement, so no resale certificate is needed at all.

Accountants and tax professionals advising on staffing arrangements for technical support

Note the letter draws a real distinction between software support and support for other tangible personal property — the resale-certificate mechanism only comes into play for software support; non-software technical support charges in this fact pattern aren't taxable in the first place. Confirm which category applies before advising a client on documentation.

Common questions

Q: Is telephone technical support for software taxable in Texas?
A: Yes — charges for telephone technical support of tangible personal property (including software) are subject to Texas sales and use tax if provided to a recipient in Texas.

Q: Can technical support be purchased tax-free?
A: Yes, if the purchaser is reselling that support service to its own customers, it may be purchased for resale.

Q: In a staffing arrangement where Company B provides technical support staff to Company A, can Company A accept a resale certificate instead of paying tax?
A: If the technical support Company A provides is for software, yes — Company A may accept a resale certificate from Company B in lieu of tax. If the support is for products other than software, Company B's charges aren't taxable at all, so no resale certificate is needed.

Q: Does it matter whether the technical staff work on-site at Company B's facility or off-site at Company A's facility?
A: No — the letter reaches the same answer (resale certificate for software support; no tax and no certificate for non-software support) under both arrangements.

Q: Why does this letter amend an earlier one?
A: The Comptroller reviewed Administrative Hearing No. 32,349 regarding telephone technical support and used it to clarify the taxability rule for support services provided to a Texas recipient.

Citations and references

No specific statutes or rules are cited by number in the letter text; it references Administrative Hearing No. 32,349 as the basis for the amendment.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9508L1366B09

Original ruling text

August 1, 1995

Dear *****:

I have just reviewed an Administrative Hearing number 32,349,
(copy attached) regarding telephone technical - support, and
would like to amend my letter of July 17, 1995. This will
also respond to your follow-up letter of August 2.

Charges for telephone technical support of tangible personal
property are subject to Texas sales and use tax if the service
is provided to a recipient in Texas. The service may, of course,
be purchased for resale if the customer is reselling the support
to his customers.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The
direct line is 512/463-4680. You may also write to Tax
Administration, Comptroller of Public Accounts.

Sincerely,

Al Van Allen
Tax Administration Division

July 17, 1995

Dear ****:

Thank you for your recent letter which is restated in part
with response below.

Company A (a Texas Corporation) contracts with Company B (a Texas
Corporation) as a contractor to provide technical staff off-site
at Company A's facility for telephone technical support of Company
A's products. Company A provides all supplies and direct supervision
for these technical contractors. Does Company B charge Company A
Texas sales tax on the technical staff provided to Company A?

Response: If Company A provides technical software support it may
accept a resale certificate from Company B in lieu of Tax. If
Company A provides technical support for products other than
software, its charges are not taxable and no resale certificate is necessary.

Company A (a Texas Corporation) contracts with Company B (a Texas
Corporation) as a contractor to provide technical staff on site at
Company B's facility for telephone technical support of Company
A's products. Company B provides all supplies and direct supervision
for these technical contractors. Does Company B charge Company A
Texas sales tax on the technical staff provided to Company A?

Response: If Company A provides technical software support it may
accept a resale certificate from Company B in lieu of Tax. If
Company A provides technical support for products other than software,
its charges are not taxable and no resale certificate is necessary.

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

You may call me toll free at 1-800-531-5441, ext. 34680. The direct
line is 512/463-4680. You may also write to Tax Administration
Comptroller of Public Accounts.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9508416L