A web developer asked three questions: is monthly web site maintenance/programming taxable if the site belongs to the client; does selling software over the web to out-of-state buyers require collecting Texas tax; and is web site design/programming work split between taxable and nontaxable pieces, with HTML vs. CGI vs. WinCGI programming treated differently?

Plain-English summary

A web developer/designer asked the Comptroller three related questions about a growing 1998 business: web site creation, monthly maintenance, and software resale.

Monthly web site maintenance (audits + programming): Even though the developer was only altering a site the client already owned, the Comptroller ruled that creating and maintaining web sites using HTML counts as a taxable data processing service — not the nontaxable modification of a computer program the developer didn't sell. Just owning/altering someone else's existing product doesn't exempt the HTML work.

Reselling software over the web to out-of-state buyers: No Texas tax collection is required, but the developer must keep records proving the buyer's out-of-state location — for software delivered by direct download, the customer's out-of-state mailing address on the registration form is sufficient documentation.

Web site design/programming breakdown (HTML vs. CGI vs. WinCGI): HTML programming is a taxable data processing service whenever the Texas customer derives the benefit of that service in Texas. CGI programming is analytically different — it's treated as computer programming rather than a data processing service. But under Tax Code Section 151.007 (which sweeps related charges into the total taxable sales price), CGI programming embedded as part of an HTML document gets pulled into the same taxable data-processing bucket. Standalone computer programming (CGI, and by the letter's own assumption, WinCGI too) can be exempt under Rule 3.308(b)(4) — but ONLY if the program is created completely from scratch for that customer, with exclusive rights transferred to them. If the developer instead builds on a reusable framework or copyrighted routines across multiple customers (even with per-customer modifications), that doesn't meet the from-scratch requirement, and such sales to Texas residents remain taxable.

What this means for you

Web designers and developers doing HTML-based site work

Treat HTML site creation and maintenance as a taxable Texas data processing service by default — the fact that you're only modifying a client's existing site, rather than building new, does not make it exempt.

Developers who also do standalone programming (CGI, scripting, custom applications)

The from-scratch/exclusive-rights test under Rule 3.308(b)(4) is strict: reusing your own framework or code library across clients — even with meaningful per-client customization — will likely fail that test and keep the work taxable. Genuinely one-off, ground-up development with full rights transfer to the customer is what qualifies.

Businesses selling downloadable software to customers nationwide

You don't need to collect Texas tax on sales to verified out-of-state buyers, but keep documentation (like the out-of-state address on a registration form) showing where the buyer is actually located.

Common questions

Q: Is monthly web site maintenance (HTML-based) taxable in Texas, even if I'm just updating a site the client already owns?
A: Yes — it's treated as a taxable data processing service, not exempt program modification.

Q: Do I need to collect Texas sales tax when I sell software online to an out-of-state customer?
A: No, as long as you retain records (like an out-of-state mailing address on the registration form) documenting the buyer's location.

Q: Is CGI programming taxed the same way as HTML programming?
A: Not exactly — CGI is treated as computer programming rather than a data processing service, but CGI embedded within an HTML document gets swept into the taxable HTML data-processing charge under Tax Code Section 151.007.

Q: When is custom programming work exempt under Rule 3.308(b)(4)?
A: Only when the program is created completely from scratch for that customer with exclusive rights transferred to them — reusing a framework or copyrighted routines across multiple customers does not qualify.

Q: Can I rely on this letter for my own web development business?
A: No. It's based on the facts presented, and the letter notes other facts, though similar, may provide a different result.

Citations and references

• Tex. Tax Code § 151.007 (total sales price includes related charges/services that are part of the sale)
• 34 Tex. Admin. Code Rule 3.308(b)(4) (charges to create/modify a program not sold by the modifier are not taxable, subject to the from-scratch/exclusive-rights 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/9804489L

Original ruling text

April 7, 1998

Dear Ms. **:

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

1) I provide monthly maintenance on web sites, consisting of both services
(audits) and programming. Since I am only altering a current product (the web
site) that belongs to the client, am I still responsible for collecting sales
tax? According to Selena, the monthly services are not taxable. However, she
did not know if the maintenance programming was taxable.

Response: The creation and maintenance of web sites using HTML is considered
to be a taxable data processing service rather than non-taxable maintenance of
a computer program not sold by you.

2) I resell software over the web. If a buyer is from out of state, do I
collect sales tax?

Response: No. However, you must retain records to show the customer's
out-of-state location. The customer's out-of-state mailing address on the
software registration form will be sufficient in the case of software
downloaded directly from your server.

3) I design and create web sites. According to Selena, the design, reviews,
and anything that is not programmed are not taxable. However, my time spent
actually programming the site is taxable. Is this the correct breakdown of
taxable vs. non-taxable items for web development? Is there a finer granularity
of the breakdown (i.e. CGI vs. HTML vs. WinCGI)?

Response: For state sales and use tax purposes, HTML programming is a data
processing service and is taxable in Texas when your customer derives a benefit
from the service in Texas. CGI programming is different as it is considered
computer programming rather than a data processing service.

Under Texas Tax Code 151.007, the total amount for which a taxable item is
sold, leased, or rented includes all related charges including a service that
is a part of the sale. Accordingly, CGI programming that is embedded as part
of an HTML document would be considered part of the taxable data processing
service.

Rule 3.308(b)(4) states "Charges to create a program or modify an existing
program not sold by the person doing the modification are not taxable." The
Comptroller has held that the exemption for software creation applies to
software created from scratch for the customer where the exclusive rights to
the program are transferred to the customer. Often, such software may be
modified for each customer, however, a framework and several copyrighted
routines are employed to produce the software. This does not meet our from
scratch requirement and such sales to Texas residents would be subject to sales
tax.

I am not familiar with WinCGI and attempted to reach you several times but
received no response. Assuming WinCGI is similar to CGI but using a window
rather than UNIX system. the answer would be the same.

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