Is installing a memory card in a computer taxable, and does installing software drivers along with it change the answer?

Plain-English summary

This is a follow-up letter clarifying an earlier response that said "charges for installing and configuring software not sold by you are not taxable." The Comptroller acknowledged the original answer wasn't clear enough and walked through the distinction in more detail.

Drivers are software, and charges to install drivers are not taxable if the installation isn't done in connection with something else that's subject to tax. But inserting a memory card into a motherboard — whether as a replacement for an existing card or into an unused expansion slot — is itself repair, remodeling, or restoration of the computer, and that charge is taxable under Tax Code § 151.0101(a)(5). And under Tax Code § 151.007(b), the total taxable price of an item includes any service that's part of the sale — so if driver installation happens alongside (in connection with) that taxable card installation, the driver-installation charge becomes taxable too, folded into the overall taxable service.

The letter is careful to note installation is not automatically taxable on its own. Installing a fully functioning standalone unit — the example given is a washing machine, just hooking up hoses, leveling it, and plugging it in — isn't taxable if the installer didn't also sell the unit. Similarly, connecting a peripheral device (a standalone unit cabled to an existing CPU) isn't taxable if the installer didn't sell that device either. And driver-installation charges tied to that kind of nontaxable installation remain nontaxable.

What this means for you

Computer repair and IT service businesses

Charge tax on memory-card (or similar internal hardware) installation as computer repair/remodeling — that's taxable regardless of who sold the card. Driver/software installation is separately nontaxable UNLESS it's bundled with a taxable hardware installation or sale, in which case the whole charge becomes taxable together.

Businesses installing standalone equipment or peripherals

If you didn't sell the unit or peripheral device yourself, a simple hookup/connection installation (not internal hardware modification) is not taxable — and driver installation tied to that kind of connection stays nontaxable too.

Common questions

Q: Is installing a memory card in a customer's computer taxable?
A: Yes — inserting it into the motherboard is repair, remodeling, or restoration of the computer, which is taxable.

Q: Is installing a software driver taxable?
A: Only if it's done in connection with something else that's taxable, like a hardware installation; standalone driver installation is not taxable.

Q: Is connecting an external peripheral to a customer's CPU taxable?
A: Not if you didn't also sell the peripheral device — plugging in an external, cabled unit is different from modifying internal hardware.

Q: Can another business rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Statutes:

• Tax Code § 151.0101(a)(5) (labor to repair, remodel, maintain, or restore tangible personal property)
• Tax Code § 151.007(b) (sales price includes a service that is part of the sale)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9709745L

Original ruling text

September 23, 1997

Dear**:

Thank you for your follow-up email. I apologize for not being more clear in my
response.

My original letter said "Charges for installing and configuring software not
sold by you are not taxable." Drivers are software. Charges to install
drivers are not taxable if the installation is not done in connection with
something else that is subject to tax.

Here is where I think the confusion arises. Tax Code 151.0101(a)(5) imposes
sales tax on labor to repair, remodel, maintain, or restore tangible property.
The insertion of a card in an motherboard as a replacement for an existing card
or in an unused expansion slot constitutes either repair, remodeling or
restoration of the computer the charge for which is subject to sales tax. And,
under Tax Code 151.007(b), "the total amount for which a taxable item is sold,
leased, or rented includes a service that is a part of the sale..."
Accordingly, charges for installing and configuring software not sold by you
become taxable if the installation or configuration is done in connection with
the provision of a taxable service or a sale of property.

Let me point out that installation is not in and of itself a taxable service.
For example, when a person charges for installing a fully functioning unit
(such as a washing machine) by attaching the inlet and outlet hoses, leveling
the feet, and plugging it in, the installation charge is not taxable if the
installer did not also sell the unit. By the same token, charges for
connecting (installing) a peripheral device (a stand alone cabled to the back
of a CPU) to a customer's CPU are not taxable if you did not also sell the
device. Charges for installing drivers in connection with such a non-taxable
installation are also not taxable.

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. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division