Does Texas sales tax apply to charges for computer consulting, hardware setup, software installation, training, and computer repair/maintenance?

Subject

Hardware — Repairs/Upgrades/Maintenance/Service Agreements

Plain-English summary

A computer consulting business asked the Texas Comptroller which of its various charges are subject to sales tax. The Comptroller's answer sorts the services into taxable and non-taxable buckets based on what's actually being sold: services that provide expertise, advice, installation of items not sold by the consultant, or training are not taxable, while services that involve assembling, repairing, or maintaining hardware, or cabling a building, are taxable.

Not taxable: business consulting built around the consultant's professional opinion (as opposed to information services like "where to get the best price"); evaluating and writing a report on a client's computer configuration (without selling the hardware or software or earning a commission); installing or configuring software the consultant didn't sell; installing peripheral hardware onto an existing system; training a client's employees on system use; and modifying software the firm didn't sell.

Taxable: the initial setup/assembly of a new computer (connecting the monitor, mouse, keyboard, and printer to the CPU) is treated as "assembly" and is taxable; repair and maintenance of computer hardware is taxable; and cabling of existing buildings is taxable.

What this means for you

Computer consultants and IT service providers

Break out your invoice line items carefully. Advisory/consulting time, evaluation reports, software installation/configuration (for software you didn't sell), peripheral hookup to an already-set-up system, and employee training can be billed without sales tax. But charge and collect sales tax on new-computer assembly, hardware repair/maintenance, and building cabling work.

Business owners hiring computer services

Expect your invoice to potentially separate taxable items (new PC setup, hardware repairs, building cabling) from non-taxable items (consulting, training, software installs, peripheral hookups to an existing machine) — that split is expected and consistent with Comptroller guidance, not an error.

Accountants and tax professionals

The key distinction the Comptroller draws is between (1) professional/expert opinion services and non-selling installation/configuration/training work (exempt) versus (2) hardware assembly, repair, maintenance, and building cabling (taxable, treated similarly to sales of tangible personal property/real property improvement work).

Common questions

Q: Is a computer consulting or advisory fee taxable in Texas?
A: No, per this letter, if it's centered on the consultant's expert or professional opinion and isn't tied to a sale of taxable items. (Note: consulting that's really an "information service," like telling a client where to find the best price on a product, is taxable as an information service.)

Q: Is installing software or peripheral hardware taxable?
A: No, per this letter, as long as the consultant didn't sell the software or hardware being installed and it's going onto an existing system.

Q: Is setting up a brand-new computer taxable?
A: Yes — per this letter, the initial setup of a computer (connecting monitor, mouse, keyboard, and printer to the CPU) counts as assembly and is subject to sales tax.

Q: Are hardware repair and maintenance charges taxable?
A: Yes, per this letter, charges for repair and maintenance of computer hardware are subject to Texas sales tax, as is cabling of existing buildings.

Citations and references

No statutes or administrative rules are cited by name in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9604L1404D05

Original ruling text

April 17, 1996

Dear **:

Mr. Sharp asked me to provide you the information you requested on the tax
treatment of charges for computer consultation and related services.

Consultation services central to which are the expert or professional opinions
of the consultant are not taxable if they are not related to sales of taxable
items. Consultation services more in the nature of information services, such
as where to get the best price on a product, are taxable as information
services. Accordingly, charges for business consulting, as you describe it,
are not subject.

Computer network services can be more complex. Charges to evaluate and write
a report on a client's computer configuration are not taxable. You advise the
client to buy hardware or software but do not sell it or receive a commission
on the sale.

Charges for installing and configuring software not sold by you are not taxable.
In addition, charges for installing peripheral hardware items on an existing
system are not taxable. On the other hand, the initial set up of a computer,
i.e. connecting the monitor, mouse, keyboard and printer to the CPU, is
considered assembly and is subject to sales tax.

Charges for training client's employees in system use are not subject to sales
tax. Also, charges for modifying software not sold by your firm are not
subject to tax.

Charges for repair and maintenance of computer hardware are subject to sales
tax as are charges for cabling existing buildings.

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 Policy Division, Comptroller of Public
Accounts, Post Office Box 13528, Austin, Texas 78711.

Sincerely,

Al Van Allen
Tax Policy Division

NOTE: Previous Accession Number 9604121L