Does a university have to charge sales tax on the fee it bills dorm students each semester for network port access to the campus computer system?

Subject

College/University — Network Ports Fees Charged To Dorm Students To Access Information From The University Computer System

Plain-English summary

A university asked the Comptroller whether it needs to charge sales tax on the fee it bills dorm students each semester for the use of network ports in their dorm rooms, which let students access information from the university's computer system.

The Comptroller ruled that these semester fees are subject to sales tax, because they are a sale of an information service. The letter points to the Comptroller's Rule 3.342 on information services as the governing rule.

The letter also makes a separate but important point: even though the university itself is an exempt entity, that exemption does not excuse it from its duty to collect sales tax on taxable services it sells to students. Being tax-exempt as an organization is different from selling a taxable service to someone else.

As with other letters of this type, the Comptroller notes the ruling is based on the facts submitted and that other, similar facts could produce a different result.

What this means for you

Colleges and universities

If your school charges dorm residents a recurring fee for network port access to the campus computer system, this letter treats that charge as a taxable sale of information services. Your school's own tax-exempt status does not relieve it of the obligation to collect sales tax on that fee from students.

Business officers and accountants at exempt organizations

This letter is a reminder that an organization's exempt status attaches to the organization, not automatically to every service it sells. An exempt entity can still be required to collect sales tax on a taxable service, such as an information service, sold to students, members, or the public.

Tax professionals advising on information services

The ruling relies on Rule 3.342, the Comptroller's rule defining and taxing information services. If you're evaluating whether a data- or network-access fee is taxable, this letter is an example of network/computer-system access fees being classified as information services.

Common questions

Q: Does the university have to charge sales tax on the dorm network port fee?
A: Yes. The letter states the fee charged to dorm students each semester for this service is subject to sales tax as the sale of an information service.

Q: The university is a tax-exempt entity — doesn't that make the fee exempt too?
A: No. The letter specifically states that although the university is an exempt entity, it must still collect sales tax on taxable services sold to students.

Q: What rule governs this determination?
A: The letter cites Rule 3.342 on information services (34 Tex. Admin. Code § 3.342) as the enclosed authority for the ruling.

Q: Could this answer be different for another school or fee arrangement?
A: Yes. The letter states the opinion is based on the facts submitted, and other facts, though similar, may yield different results.

Citations and references

• 34 Tex. Admin. Code § 3.342 (information services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608630L

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

August 16, 1996

Dear ***:

Thank you for your August 8th letter concerning the
taxability of charges to dorm students for the use of network ports in their
dorms so the student can access information from the UNIVERSITY A computer
system.

The fees charged to dorm students each semester for
this service are subject to sales tax as the sale of information services.
Although UNIVERSITY A is an exempt entity, it must collect sales tax on taxable
services sold to students. I have enclosed our Rule 3.342 on information
services.

This opinion is 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.
5-0030. The direct line is 512/475-0030. You may also write to Tax Policy,
Comptroller of Public Accounts.

Sincerely,
David Somerville
Tax Policy Division