If a broker pays a financial-information company's subscription fee for a customer, and also pays the information company a separate premium/commission based on the customer's brokerage business, is that premium/commission subject to Texas sales tax — and does it matter that the broker is out of state?

Plain-English summary

This is an internal Tax Policy memo (not a taxpayer-requested letter ruling in the usual sense) addressed to a Comptroller auditor, addressing the taxability of "premium" or "commission" charges in a specific business arrangement: a company sells financial, investment, and stock market reports by subscription. Some subscribers don't pay for the reports themselves — instead, a broker or financial institution "picks up" (pays) the subscription fee on the subscriber's behalf, expecting the subscriber to do business with that broker. The information company, in turn, receives a commission or premium from the broker based on the brokerage fees generated when the subscriber trades through that broker.

The memo draws a two-part distinction:

• The premium/commission itself is not subject to sales tax, so long as it is separately stated and represents genuine, separate compensation paid by the broker to the information provider (i.e., it's not just a relabeled piece of the taxable subscription charge).
• The underlying subscription charge is still taxable for reports mailed to Texas subscribers — even when the bill for that subscription is sent to and paid by an out-of-state broker. The reasoning given is that the Texas subscriber is the one actually using the publication/service in Texas, and receives constructive possession of it there when it's delivered to them.

What this means for you

Information/data service providers with broker-sponsored subscribers

If a broker or financial institution pays subscription fees on behalf of your Texas customers, you still need to collect Texas sales tax on those subscription charges — billing an out-of-state broker instead of the Texas end-user doesn't remove the Texas tax obligation, because the taxable use/delivery is happening in Texas.

Structuring commission or premium payments from brokers

A separate premium or commission a broker pays you (tied to the brokerage business your subscribers generate) can be treated as nontaxable, but only if it's separately stated from the subscription charge and reflects real, separate compensation — not just a different label on the same taxable transaction.

Brokers who "pick up" subscription costs for clients

Paying a subscriber's information-service bill doesn't change who is treated as using the service for Texas tax purposes; the information provider will still look to the location of the actual subscriber (not the paying broker) to determine Texas tax.

Common questions

Q: Is the commission/premium a broker pays an information company subject to Texas sales tax?
A: No, as long as it is separately stated and represents genuine, separate compensation paid by the broker to the provider of the information service.

Q: If an out-of-state broker pays a Texas subscriber's bill, does the information company still owe Texas sales tax on the subscription?
A: Yes. The information provider should still collect tax on subscriptions mailed to Texas subscribers, even when billed to and paid by an out-of-state broker, because the Texas subscriber is using the publication/service in Texas.

Q: Who is treated as "using" the report for tax purposes — the broker who pays, or the subscriber who receives it?
A: The subscriber. The memo states the broker is making use of the publication/service in Texas and constructive possession passes when it is delivered to clients in Texas — but ultimately it's the Texas subscriber's receipt/use that anchors the taxable subscription charge.

Q: Can I rely on this memo for my own business?
A: This document is an internal Tax Policy memo to an auditor rather than a ruling addressed to a specific taxpayer, and STAR documents generally may no longer reflect current policy even when not marked superseded. Consult a licensed Texas tax professional about your specific facts.

Citations and references

No specific statutes or administrative rules are cited in the text of this memo.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9512L1405B01

Original ruling text

DATE: December 22, 1995
TO: John DeLuna, Auditor, Fort Worth Audit Office
FROM: Kevin Koller, Tax Policy
SUBJECT: Taxability of Premium Charges

Issue: A seller of financial, investment, and stock market reports provides
reports to subscribers that do not actually pay for the service. The amount
is paid ("picked up") by a broker or financial institution.

The receiver of the newsletter is expected to do business with the broker
responsible for paying the subscription fee. The information company also
receives a commission or premium charge based on brokerage fees when the
customer conducts transactions through the sponsoring broker.

The premium (commission charges) will not be subject to sales tax if the
amount is separately stated and the broker or sponsoring company is paying
a separate and legitimate compensation to the provider of the information
service.

The information service provider should collect tax on subscriptions mailed
to Texas subscribers even when they are billed to an out-of-state brokerage
service. The broker is in fact making a use of the publication/service in
Texas and has received constructive possession when delivered to its
clients in Texas.

NOTE: Previous Accession Number 9512133L