How does Texas sales tax apply to network installation services — evaluating a client's computer setup, installing or configuring hardware/software you didn't sell, initial computer setup, employee training, modifying existing software, and hardware repair?

Plain-English summary

A taxpayer asked for the special rules on Texas sales tax for network installation of hardware and software and related services. The Comptroller laid out a service-by-service breakdown:

• Consultation services centered on the consultant's expert/professional opinion are not taxable if unrelated to a sale of taxable items. But consulting that's really more like an information service — such as telling a client where to get the best price on a product — is taxable as an information service.
• Evaluating a client's computer configuration and writing a report (advising the client to buy hardware/software without selling it or taking a commission) is not taxable.
• Installing and configuring software you didn't sell, and installing peripheral hardware you didn't sell on an existing system, are not taxable.
• Initial computer setup — connecting the monitor, mouse, keyboard, and printer to the CPU — is taxable, because it's treated as assembly.
• Training a client's employees in system use is not taxable.
• Modifying software you didn't sell is not taxable.
• Repair and maintenance of computer hardware, and cabling existing buildings, are taxable.

What this means for you

IT consultants and network installers

The dividing line is largely whether you sold the item being worked on and whether the charge is "assembly"/repair versus advice/installation-of-someone-else's-item. Pure advice and installing/configuring third-party gear you didn't sell tend to be untaxed; hooking up a brand-new system, repairing hardware, and running new cable are taxed.

Businesses hiring outside computer consultants

Ask your consultant to itemize charges along these lines — evaluation/advice, installation of gear you already own, training, and modification are generally untaxed, while initial setup of new equipment, hardware repair, and building cabling carry sales tax.

Accountants and tax professionals

A useful line-item map for a common computer-services engagement: the "did the provider sell the item" and "is this genuinely advice versus assembly/repair" tests recur across nearly every item on this list, and echo the same taxable-item link tested in the companion CAD/consulting letter (9909697L) issued around the same time.

Common questions

Q: Is a consultant's evaluation and report on my computer setup taxable?
A: No, as long as they don't sell you the hardware/software or take a commission on the sale.

Q: Is installing hardware or software I bought elsewhere taxable?
A: No — installing/configuring software or peripheral hardware not sold by the installer is not taxable.

Q: Is setting up a brand-new computer (monitor, keyboard, mouse, printer) taxable?
A: Yes — that's treated as assembly and is taxable.

Q: Is repairing or maintaining computer hardware taxable?
A: Yes, as is charging for cabling in an existing building.

Q: Can I rely on this letter for my own computer services business?
A: No. It's based on the specific facts presented and can be relied on only by the taxpayer to whom it was issued; other facts, even if similar, may produce a different result.

Citations and references

No specific Tax Code section or numbered Comptroller rule is quoted in the body of this letter; the answer applies the Comptroller's general policy distinctions between taxable assembly/repair and nontaxable advice/third-party-item installation.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9909317L

Original ruling text

September 24, 1999

Subject: Sales Tax

Dear **:

This is in response to your request for a ruling on the following fact
situation and questions:

I understand there are some special rules about sales tax on network
installation of hardware and software. Could you please send me this
information.

Response: Following are some guidelines on our current policy on network
installation of hardware and software and related services.

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
items. Consultation services more in the nature of information services, such
as where to get the best price on a product, are taxable as information
services.

Computer network services can be more complex. Charges to evaluate and write a
report on a client's computer configuration are not taxable. You advise the
client to buy hardware or software but do not sell it or receive a commission
on the sale.

Charges for installing and configuring software not sold by you are not
taxable. In addition, charges for installing peripheral hardware, that you did
not sell, on an existing system are not taxable. On the other hand, the initial
set up of a computer, i.e. connecting the monitor, mouse, keyboard and printer
to the CPU, is considered assembly and is subject to sales tax.

Charges for training client's employees in system use are not subject to sales
tax. Also, charges for modifying software not sold by your firm are not subject
to tax.

Charges for repair and maintenance of computer hardware are subject to sales
tax as are charges for cabling existing buildings.

Sales tax rules are available on the Internet
.

The State Tax Automated Research system may be accessed on the Internet at:

This opinion is based on the facts presented. Other facts though similar may
provide a different result. I hope this information answers your questions.
If you need additional information, please call me toll-free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts. You may also e-mail our tax
help section at:

Gilbert Zamora

Tax Policy