When a seismic-data library company sells exempt geophysical information but separately bills for copying it onto tapes, the tapes themselves, and shipping, are those add-on charges also covered by the geophysical-services tax exemption?

Plain-English summary

A company maintaining a library of seismic data from geophysical surveys asked the Comptroller about the tax treatment of its billing structure. When a customer requests data, the company downloads it onto tapes and sends two invoices: one for the seismic data itself (nontaxable under Rule 3.342(d)(2), so no tax is charged), and a second for copying the data onto tapes, the cost of the tapes, and shipping.

The Comptroller confirmed the tapes are included in the sales price of the nontaxable seismic information under Rule 3.342(d)(2) -- so splitting these charges onto a second invoice doesn't strip them of the exemption from the customer's perspective. However, because the underlying seismic data sale is nontaxable, the company itself must pay Texas sales and use tax on all the taxable items it buys and uses to furnish that nontaxable information -- including the tapes and its copying costs -- under Rule 3.342(e)(1) (which lets providers of taxable information services issue resale certificates for tangible personal property transferred as part of the service, implying providers of nontaxable information services like this one instead owe tax on those same inputs themselves). Finally, the shipping charge for delivering the nontaxable information is not taxable, because Rule 3.303 ties transportation-charge taxability to the taxability of the underlying sale.

What this means for you

Geophysical, seismic data, and other scientific-information libraries

Don't charge your customer separately for the copying/tape/shipping costs as if they were independently taxable add-ons to an exempt information sale -- they're folded into the exempt sales price. But budget for the sales/use tax you'll owe yourself on the tapes and copying supplies you purchase to fulfill that exempt service.

Oil and gas exploration companies buying seismic data

Expect your invoice for licensed seismic data, including the tape media and shipping, to come without Texas sales tax.

Accountants and tax professionals

This letter is a clean illustration of how a nontaxable information service shifts the tax burden for its own consumable inputs (tapes, copying) onto the SELLER rather than the buyer -- the opposite of the resale-certificate mechanism available to sellers of taxable information services under Rule 3.342(e)(1).

Common questions

Q: Are tape-copying and tape charges taxable when billed separately from exempt seismic data?
A: No, per this letter -- they're included in the nontaxable sales price under Rule 3.342(d)(2), regardless of separate invoicing.

Q: Who pays tax on the tapes and copying supplies themselves?
A: The seismic-data provider, per this letter -- since the underlying sale is nontaxable, the provider owes tax on the taxable items it buys and uses to furnish that information.

Q: Is the shipping charge for the seismic data taxable?
A: No, per this letter and Rule 3.303 -- shipping charges follow the taxability of the underlying sale, which here is nontaxable.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.342(d)(2) (exemption for geophysical/seismic information services; rendered here from a garbled "¤3.342" OCR artifact of the same rule citation)
• 34 Tex. Admin. Code Rule 3.342(e)(1) (resale certificates for tangible personal property transferred with a taxable information service)
• 34 Tex. Admin. Code Rule 3.303 (transportation/shipping charges)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9707583L

Original ruling text

July 22, 1997

Dear ***:

Thank you for your letter of June 14, 1997, concerning the Texas sales and use
tax responsibilities of your client, ***.

Facts:

*** maintains a library of seismic data obtained from geophysical
surveys. When information is requested by a customer, ** downloads
the data onto tapes which are sent to the customer. * generally
sends the customer two invoices. One invoice contains a charge for the seismic
data derived from geophysical services. In accordance with 34 TAC ¤3.342
(d)(2), **** is not charging tax on this service. The second invoice
contains charges for copying the data to tapes for the customer, the cost of
the tapes sent to the customer, and the charge for shipping the tapes.

Ruling Requested

Based on the facts stated above, you are seeking a ruling as to whether the
other charges related to the geophysical services are included in the sales tax
exemption provided under 34 TAC ¤3.342 (d)(2). The second invoice for the
charges for copying the data to the tapes, the cost of the tapes and the
shipping are a necessary part of providing the exempt services. Therefore, we
interpret the exemption for geophysical services to also include these charges.

Response: Yes, the tapes are included in the sales price of the nontaxable
information (seismic data). Section 3.342(d)(2). However, because seismic
data is a nontaxable service, *** must pay Texas sales and use tax on
all taxable items bought and used in furnishing the nontaxable information,
e.g., tapes, copying charges, etc. See Section 3.342(e)(1) that allows persons
providing taxable information services to issue resale certificates for
tangible personal property transferred as an integral part of the taxable
service.

The charge for shipping the nontaxable information is not taxable because the
sale is not taxable (see Section 3.303 concerning transportation charges).

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

You may call me toll free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division