Is my company's charge for online continuing-education courses and certification testing subject to Texas sales tax?

Subject

Internet Services — Online Training Courses/Educational Classes /Webinars & Testing Provided Via Internet

Plain-English summary

A company planned to move its correspondence courses and seminars for licensed professionals onto the Internet: professionals would read lessons online, take a quiz, and -- if they passed -- receive a certificate needed to maintain their professional license. The company charged for processing the quiz and issuing the certificate, and asked the Comptroller whether those charges were taxable.

The Comptroller answered that charges for providing the continuing education and testing itself are not subject to sales tax. However, the letter draws a separate line for the underlying web infrastructure: if the company's Internet Service Provider bills the company for maintaining the web page, or bills separately for processing students' data, those charges to the company are taxable as data processing services.

What this means for you

Businesses offering online training, CE courses, or certification testing

Charges you bill to students/professionals for course content, testing, and certification are not subject to Texas sales tax under this letter's facts. This is good news for continuing-education providers moving content online.

Businesses paying an ISP or web host to run the course platform

Be aware that amounts your company pays a third party (like an ISP) for web page maintenance or for processing student data are treated as taxable data processing services -- that tax exposure sits on the vendor relationship, separate from what you charge your own customers.

Accountants and tax professionals

This letter is useful for distinguishing between (1) the sale of an educational/testing service, which is not taxed, and (2) data processing services (web hosting, data processing for the course operator), which are taxable under Texas's data processing services category -- even when both activities occur within the same online course delivery.

Common questions

Q: Do I need to charge my customers sales tax for online continuing education courses and certification testing?
A: Based on this letter's facts, no -- charges for continuing education and testing provided via the Internet are not subject to sales tax.

Q: What about what I pay my web host or Internet Service Provider to run the site?
A: Those charges, if billed separately for maintaining the web page or processing student data, are subject to sales tax as data processing services.

Q: Does this apply to any type of online course?
A: This opinion is based on the specific facts submitted (continuing education and licensing-related testing for professionals). The letter itself notes that other facts, though similar, may yield different results.

Citations and references

No statutes or administrative rules were 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/9604L1408B01

Original ruling text

April 4, 1996

Dear ***:

Thank you for your recent letter regarding the tax treatment of charges for
continuing education testing provided via the Internet. Your facts are
restated with response below.

My company will soon be offering educational lessons, testing and certification
on the Internet for professionals that have licensing requirements to practice.
The educational service we are providing on the Internet is offered currently
through correspondence courses and seminars. We are converting course material
and posting it on the Internet along with the corresponding quiz. Professionals
may read the lessons and take the quizzes on-line. We will grade the quiz and
issue a certificate to those that pass. We charge for processing the quiz and
issuing the certificate required to maintain their license to practice their
profession.

Response: Charges for providing continuing education and testing are not
subject to sales tax. Charges by the Internet Service Provider to ***
for maintaining the WEB page and any separate charges for processing students
data are subject to sales tax as data processing services.

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. My Internet address is [email protected].

Sincerely,

Al Van Allen
Tax Policy Division

NOTE: Previous Accession Number 9604152L