When a document-outsourcing company provides photocopying, duplicating, facsimile, internal messenger service, and equipment maintenance, which pieces are taxable — standalone, bundled, or itemized?

Plain-English summary

A company provides an outsourcing service managing some or all of a customer's document production, assembly, and distribution — photocopying, duplicating, facsimile, internal messenger service, and the equipment (copiers, fax machines) needed to run them, plus administrative extras like monthly usage reports. It asked the Comptroller three related questions: how is each service taxed standalone, does grouping them into an overall package change the answer, and does itemizing them separately on the invoice matter?

The Comptroller worked through each service. There's no indication the company is providing staff leasing services under Rule 3.364, so that framework doesn't apply. Photocopying, duplicating, facsimile, and equipment maintenance charges are all subject to sales tax. Facsimile is additionally taxable as a telecommunications service, which also triggers the Telecommunications Infrastructure Fund (TIF) assessment under Rule 3.1102 (see currency note below). Maintaining the company's own equipment (copiers, fax machines) used to provide these services is treated as simply part of the charge for that underlying taxable service. By contrast, maintaining equipment used only for the internal messenger service (like a dolly) is part of a nontaxable messenger service.

The critical bundling rule: all five services become taxable if the company charges a single, lump-sum price covering all of them — even the otherwise-nontaxable messenger service gets swept into taxability when bundled with taxable services under one undifferentiated charge. Itemizing each service separately on the invoice preserves the individual, correct tax treatment for each one.

What this means for you

Document-outsourcing and business-process-outsourcing companies

Keep photocopying, duplicating, facsimile, equipment maintenance, and internal messenger service separately itemized on customer invoices. A single lump-sum charge covering all your services makes the whole thing taxable, even the messenger-service portion that would otherwise escape tax.

Accountants and tax professionals

When advising a bundled-services client, check whether nontaxable services (like messenger/delivery) are ever combined into an undifferentiated lump-sum charge with taxable services — that combination taxes the whole charge, so itemization is the fix, not a mere formality.

Common questions

Q: Is photocopying/duplicating/facsimile outsourcing taxable?
A: Yes, all three are subject to sales tax as standalone services; facsimile is taxed as a telecommunications service on top of that.

Q: Is internal messenger service taxable?
A: No — it's a nontaxable service, including maintenance of equipment used exclusively for it.

Q: What happens if all the services are billed as one lump sum?
A: The entire lump-sum charge becomes taxable, including the portion that would otherwise be the nontaxable messenger service.

Q: Does the TIF assessment on facsimile services still apply?
A: No — the Telecommunications Infrastructure Fund assessment discussed in this 1997 letter was repealed effective September 1, 2008 (H.B. 735, 80th Legislature). Facsimile remains taxable as a telecommunications service on other grounds, but the TIF surcharge itself is gone.

Q: Can another company 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

Rules:

• 34 Tex. Admin. Code § 3.364 (staff leasing services — found not applicable here)
• 34 Tex. Admin. Code § 3.1102 (Telecommunications Infrastructure Fund assessment)

Subsequent law (post-dates this letter):

• H.B. 735, 80th Texas Legislature (2007), repealing the TIF assessment effective 09/01/2008

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9709807L

Original ruling text

September 30, 1997

Dear ***:

Thank you for your recent letter which is restated in part with responses
below.

Our Client (hereinafter "the Company"), provides an outsourcing service which
manages all or certain aspects of a customer's document production, assembly
and distribution systems. This service could include photocopying, duplicating,
facsimile, internal messenger services and the use of all equipment to perform
such activities. The following list provides descriptions of the above
services:

1. Photocopying - The Company provides training technicians and service
   personnel who operate a photocopying center. The service personnel will either,
   on a regular scheduled basis, collect documents through-out a customer's place
   of business, or accept delivered documents from customer's employees at the
   photocopying center. Technicians at the photocopying center then manipulate the
   document (shrink, enlarge, bind, emboss, box, tabulate, place on transparencies
   or colored paper, label, staple, etc.), according to customer specifications,
   then re-routes the completed document back to the customer.

2. Duplicating - The Company provides training technicians and service
   personnel who operate a duplicating center. The service personnel will either,
   on a regular scheduled basis, collect documents through-out a customer's place
   of business, or accept delivered documents from customer's employees at the
   duplicating center. Technicians at the duplicating center then copy the
   document, as many times as the customer specifies, then re-route the completed
   documents back to the customer.

3. Facsimile - The Company provides training technicians and service personnel
   who operate a facsimile center. The service personnel will either, on a regular
   scheduled basis, collect documents through-out a customer's place of business,
   or accept delivered documents from customer's employees at the facsimile
   center. Technicians at the facsimile center then send the document, as many
   times and to whatever destination the customer specifies. Technicians also
   assure proper receipt of in-coming facsimiles and route them to the appropriate
   personnel.

4. Internal Messenger Service - The Company provides trained service personnel
   who on a regular basis sweep through the customer's place of business and
   collect documents, packages or other items for delivery. The service personnel
   will then deliver the item internally or either deliver the item to an outside
   receiver (e.g. another place of business) or coordinate for such service.

5. Document Equipment - The Company provides and maintains the copiers,
   facsimiles and other equipment necessary so that the customer's personnel can
   operate the equipment.

Each of the above described services also include certain administrative duties
provided to customers. These duties include monthly usage reports to customer's
management, proactive approaches to staying current and being able to interface
with the customer's technology and the operation of service centers during a
customer's regular business hours.

ISSUES

(1.) When any of the above-described activities are viewed as a single
stand-alone service, what are the sales/use tax consequences?

(2.) Are the sales/use tax-implications different if the above-described
services are grouped together as an overall package provided to a customer?

(3.) If the sales/use tax consequences are different, as described in question
(2) above, are the implications different if the services are separately
itemized on the invoice to customers?

Response: There is no indication that the company is providing staff leasing
services as described in the enclosed rule 3.364. Accordingly, charges for
photocopying, duplicating, facsimile, and equipment maintenance are subject to
sales tax. Facsimile services are subject to sales tax as telecommunications
services and accordingly are also subject to the Telecommunications
Infrastructure Fund (TIF) assessment. I am enclosing Rule 3.1102 for your
reference.

The Companies act of maintaining their own equipment associated with their
various processes/services such as copier and facsimile services are actually
part of their charge for copier and facsimile services. A charge for
maintenance of a dolly used in internal messenger service is simply part of a
nontaxable messenger service. Please note that all five services will be
taxable if a single, lump-sum charge is made for the services.

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