How is Texas sales tax applied to charges for designing, coding, and updating a web page for a client?

Subject

Internet Services — Creation Of Home Page/Web Site (Formatting, Scanning, Programming, Updating, Maintaining, Training, Creation Of Logos/Graphics)

Plain-English summary

An advertising agency asked the Comptroller how Texas sales tax applies to web pages it designs and codes for clients using the agency's own software. The Comptroller answered that web pages are generally treated as electronic data and graphics residing on a computer, not as computer programs. Because of that classification, creating and storing a web page is a data processing service.

That has a direct tax consequence: charges for designing, programming, and updating the web page are treated as services connected with the sale, and are taxed the same way the web page itself is taxed.

The letter also addresses sourcing for tax-rate purposes. If the customer gives the agency an exemption certificate claiming multistate benefit, the applicable tax rate is based on where the buyer receives the benefit of the service -- not on where the web server happens to be physically located.

As with other Comptroller letters of this era, the ruling notes it is based on the facts presented, and the answer could change if the facts were different.

What this means for you

Advertising agencies, web designers, and developers

If you design, code, format, or update web pages for clients -- including creating logos or graphics, scanning materials, or training clients on site maintenance -- expect those charges to be taxed as data processing services, the same way the resulting web page is taxed. This ruling treats the web page as data rather than as a computer program you're licensing.

Businesses that operate in multiple states

If your customers can benefit from a web page or web service across more than one state, ask about giving your service provider a multistate-benefit exemption certificate. Under this ruling, doing so shifts the tax-rate determination to where the customer actually receives the benefit of the service, rather than to the location of the server hosting the site.

Accountants and tax professionals

When classifying charges for web page creation and maintenance, this letter supports treating them as data processing services rather than as sales or licenses of computer software. Watch for exemption certificates claiming multistate benefit, since they change the sourcing rule from server location to place of benefit.

Common questions

Q: Is a web page taxed as a computer program in Texas?
A: No. This ruling treats a web page as electronic data and graphics residing on a computer, not as a computer program, so its creation and storage are treated as a data processing service.

Q: Are charges for designing, programming, and updating a web page taxable?
A: Yes. The letter states these charges are services in connection with the sale and are taxed the same way the web page itself is taxed.

Q: What determines the tax rate if a customer benefits from the web page in multiple states?
A: If the customer gives the agency an exemption certificate claiming multistate benefit, the tax rate is based on the location(s) where the buyer receives the benefit of the service, not on the location of the server.

Q: Could this answer change under different facts?
A: Yes -- the letter says the opinion is rendered based on the facts presented, and it may change if there are additional or different facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9611L1436F02

Original ruling text

November 4, 1996

Dear **:

You asked about the tax treatment of web pages designed
and coded by an advertising agency using agency-owned software.

Web pages are generally treated as electronic data and
graphics residing on a computer rather than computer programs. As such, their
creation and storage are considered to be data processing services. Charges
for designing, programming, and updating the web page are services in
connection with the sale and are taxed in the same manner as the web page
itself. The location or locations where the buyer receives benefit of the
service determines the tax rate and not the location of the server if the
customer issues an exemption certificate claiming multi-state benefit.

This opinion is rendered based on the facts presented.
If there are additional or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4004. The direct line is
512/463-4004. You may also write to Tax Policy, Comptroller of Public Accounts.
My Internet address is [email protected].

Sincerely,

Wade Anderson
Director, Tax Policy

NOTE: Previous Accession Number 9611707L