A web developer whose services expanded into more on-line artwork asked how Texas sales tax applies to illustrations/graphics for a website, HTML/JAVA programming, multimedia programming, and professional consultation — and whether it matters if these are provided to companies outside Texas.

Plain-English summary

A web developer whose services had expanded into more on-line artwork asked whether four specific offerings carry Texas sales tax: illustrations/graphics for an Internet or Intranet site, HTML/JAVA programming, multimedia programming, and professional consultation — and whether the answer changes for out-of-state clients.

The Comptroller broke it down category by category. Creating graphics or logos with a drawing program for a client's homepage is taxable graphic art under Rule 3.312. Scanning data into a site and creating HTML documents is taxable data processing under Rule 3.330. Custom computer programming (the letter uses JAVA as the example) created FROM SCRATCH for a customer who receives EXCLUSIVE rights to the program is NOT taxable, but creating or licensing a program where the client does NOT get exclusive rights IS taxable, per Rule 3.308.

The overarching geography rule, grounded in Tax Code Section 151.330 (which treats a computer program as tangible personal property under Section 151.009): software, graphic arts, and similar property sold and delivered to a customer IN Texas is taxable, while the same property delivered to a customer at a point OUTSIDE Texas is exempt (shipped by the seller's own facilities, delivered to a carrier for an out-of-state consignee, or delivered to a forwarding agent for an out-of-state destination).

Genuine consultation services — centered on the consultant's expert/professional opinion, unrelated to sales of taxable items — stay nontaxable. But the letter flags an important trap: if the software creator retains rights to sell or license the program (i.e., the customer doesn't get exclusive rights), a taxable sale has occurred, and any consultation services related to that same software ALSO become taxable — unless the software itself is shipped to a customer outside Texas, in which case both the software sale and the related consultation charges are exempted under Section 151.330. Finally, for data processing services like HTML programming, out-of-state residents and Texas customers with multi-state operations can give exemption certificates claiming the benefit of the service occurs outside Texas — but they then become responsible for self-assessing and remitting Texas tax on whatever portion of the service they actually use in Texas.

What this means for you

Web designers, illustrators, and programmers serving both Texas and out-of-state clients

Break your services into the right categories: graphic art/logo creation is taxable (Rule 3.312), HTML/data-scanning work is taxable data processing (Rule 3.330), and custom programming is taxable UNLESS the client gets exclusive rights to a from-scratch program (Rule 3.308). For any of these, delivery to a customer OUTSIDE Texas is generally exempt — but keep documentation of that out-of-state delivery.

Developers who retain rights to license/resell their custom software

Watch this trap: if you keep the right to sell/license a program rather than transferring exclusive rights to your customer, not only does the software sale become taxable, but your RELATED CONSULTING charges for that same software become taxable too — unless the whole package ships to an out-of-state customer.

Multi-state or out-of-state clients receiving Texas-provided data processing services

You can give an exemption certificate claiming the service's benefit occurs outside Texas, but you then take on the obligation to self-assess and remit Texas tax on whatever portion of that service you actually use within Texas — it's not a blanket pass on the whole charge.

Common questions

Q: Is creating a logo or graphic for a client's website taxable in Texas?
A: Yes, as taxable graphic art under Rule 3.312.

Q: Is custom programming (like JAVA) always taxable?
A: No — if it's created completely from scratch and the customer gets EXCLUSIVE rights to the program, it's not taxable. If the client doesn't get exclusive rights, it is taxable.

Q: Does delivering software or graphics to an out-of-state customer change the tax treatment?
A: Yes — property delivered to a customer at a point outside Texas is exempt under Tax Code Section 151.330, while the same property delivered within Texas is taxable.

Q: What happens to consultation charges if the software creator keeps rights to resell the program?
A: Those related consultation charges become taxable too, along with the software sale itself — unless the software is shipped to an out-of-state customer, in which case both are exempt.

Q: Can an out-of-state customer avoid tax on Texas-based data processing services like HTML programming entirely?
A: Not entirely — they can give an exemption certificate for the out-of-state benefit portion, but must self-assess and remit Texas tax on whatever portion of the service they use in Texas.

Q: Can I rely on this letter for my own web design/programming business?
A: No. It's based on the facts presented, and the letter notes the opinion may change on additional or different facts.

Citations and references

• Tex. Tax Code § 151.009 (computer program as tangible personal property)
• Tex. Tax Code § 151.330 (exemption for property shipped/delivered to a point outside Texas)
• 34 Tex. Admin. Code Rule 3.312 (graphic arts)
• 34 Tex. Admin. Code Rule 3.330 (data processing services)
• 34 Tex. Admin. Code Rule 3.308 (computers — hardware, software, services and sales; from-scratch/exclusive-rights exemption test)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9803168L

Original ruling text

March 2, 1998

Dear***:

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

My services have expanded to include more on-line artwork. Please advise me as
to whether I charge Texas state sales tax on the following services:

Illustrations and graphics for an Internet or Intranet site,
HTML/JAVA programming for Internet or Intranet sites,
Multimedia programming, and
Professional consultation

What if these services are provided to companies outside Texas?

Response: The creation of graphics or logos using a drawing program for a
clients homepage is considered taxable graphic art per enclosed Rule 3.312.

Scanning in information or data into the net and the creation of HTML documents
will be considered taxable data processing services. See enclosed Rule 3.330.

Creating a computer program (using a programming language such as JAVA) from
scratch for a customer that will be given the exclusive rights to the program
is not taxable. Creating or licensing a software program to another where the
client does not obtain exclusive rights is taxable. See enclosed Rule 3.308.

Tax Code 151.009 defines the term tangible property to include a computer
program. Tax Code 151.330 makes the following provisions for sales of such
property.

(a) The sale of tangible personal property that under the sales contract is
shipped to a point outside this state is exempted from the sales tax imposed
by Subchapter C of this chapter if the shipment is made by the seller by means
of: (1) the facilities of the seller; (2) delivery by the seller to a carrier
for shipment to a consignee at a point outside this state; or (3) delivery
by the seller to a forwarding agent for shipment to a location in another state
of the United States or its territories or possessions.

Accordingly, software, graphic arts, and other property that is sold and
delivered to the customer in Texas is subject to sales tax while such property
that is delivered to the customer at points outside Texas is exempt.

Consultation services central to which are the expert or professional opinions
of the consultant are not taxable if they are not related to sales of taxable
services or property. For example, if a creator of software retains any rights
to sell or license the computer program, a taxable sale has occurred.
Consultation services related to that software would also be subject to tax.
But, if that software were shipped to a customer at a point outside Texas, the
sale of the software and consultation service charges would be exempted under
Tax Code Section 151.330.

Regarding the tax treatment of data processing services such as HTML
programming, out-of-state residents and Texas customers with multi-state
operations may give exemption certificates claiming they receive benefit of the
service at points outside Texas. These individuals would then be responsible to
self assess and remit Texas tax on the portion of the data processing service
they use in Texas.

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