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The owner of a software product was liable for Texas sales tax on payments received from companies for a variety of items that the taxpayer claimed were nontaxable advertising services.  The taxpayer charged customers for creating or modifying plug-in advertisements contained in the software product. The taxpayer’s software program had a dialogue box that monitored the available storage space on a subscriber’s network. The taxpayer named this function after an advertising sponsor that provided storage serverswhich allowed the advertiser to promote its servers. This was determined to be nontaxable advertising. However, when the sponsor subsequently paid the taxpayer to add a print feature that allowed subscribers to print out the company’s report of available storage, the service then constituted taxable data processingas the advertising intent was complete without the print function.  The print function allowed the taxpayer to retrieve and print the information for its subscribers which is data processing. A web-hosting company’s purchase of a plug-in advertisement on the software that allowed subscribers to view their e-mail accounts (on the web-hosting company’s network) while logged into the taxpayer’s software program was held not to be taxable data processing because there was no indication that the taxpayer created or maintained a website or webpage for the web-hosting company or stored data for the web-hosting company on either the taxpayer’s or the company’s website. The taxpayer was simply linking subscribers to data stored on the web-hosting company’s network. However, later charges for monthly fees to maintain the integration to the Cloud Services were deemed taxable data processing services.  The taxpayer’s creation of banner ads sponsored by a company did not constitute taxable data processing. The same company’s sponsorship of the taxpayer’s monthly e-mail newsletter would also be nontaxable advertising if the charge was only for the naming rights. However, the taxpayer was sending the newsletter via e-mail, which constituted a taxable e-mail transmissionat the 80% base for taxable data processing. Because the charges for the banner ads and newsletter sponsorship were not separately stated, the entire lump sum was taxable. The taxpayer was determined to be engaged in taxable data processing when it modified its software program to create a security plug-in sponsorship for a company. Monthly fees charged by the taxpayer for notifying a company when a review of one of the company’s products was posted on a public chat room were determined to be charges for taxable information services. The information did not qualify as exempt information of a proprietary nature because the information was not collected from a private source and the taxpayer did not establish that the company had an ownership right to control the use of the information. (Decision, Hearing No. 109,109, Texas Comptroller of Public Accounts, February 6, 2015, released April 2015)


On March 10, 2015, a bipartisan group of senators introduced the Marketplace Fairness Act of 2015. Similar legislation – the Marketplace Fairness Act of 2013 – was previously introduced in February 2013 and passed by the Senate on May 6, 2013. That legislation failed to be enacted. If passed, the Marketplace Fairness Act of 2015 would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. For more information on the previous legislation, visit Federal Government Introduces New Remote Seller Bill. (Marketplace Fairness Act of 2015, March 10, 2015)


UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.


On December 16, 2014, President Barack Obama signed the Consolidated and Further Continuing Appropriations Act, 2015, for sales and use tax purposes. The Act includes a provision that extends the Internet Tax Freedom Act (ITFA) until October 1, 2015 with all provisions unchanged.


On January 9, 2015, the House of Representative introduced a bill (un-numbered) that would permanently extend the ITFA, banning states and local jurisdictions from imposing any new tax on internet access. The proposed bill removes the current effective dates of November 1, 2003 through October 1, 2015 and changes the effective date to be effective for new taxes imposed after the date of the enactment.  It is not clear if states that have been grandfathered under the existing provision could retain their current tax on internet access but it appears that may be the case.  No formal legislation has been introduced that would incorporate the Marketplace Fairness Act into this bill. The bill is sponsored by House Judiciary Committee Chairman Bob Goodlatte, among others.


For our previous news item on this topic, see Internet Tax Freedom Act is Extended Through December 11, 2014.


For an update on this news item, see Internet Tax Freedom Act Extended Until December 11, 2015.


(Consolidated and Further Continuing Appropriations Act, 2015; H.R. 235)


A Louisiana retailer that did not have any locations in Texas established nexus in the state by delivering furniture in company trucks to Texas residents. As a result, the retailer was required to collect Texas use tax on items delivered into the state. A retailer is engaged in business in Texas if it has a representative, agent, salesperson, canvasser, or solicitor operating in the state for the purpose of selling, delivering or taking orders for a taxable item. Additionally, Texas tax law requires an out-of-state retailer who is engaged in business in Texas to continue collecting Texas use tax on sales made into the state for 12 months after the seller ceases to have nexus or ceases to be engaged in business in Texas.The retailer claimed it relied on advice from the Comptroller’s office but never submitted written proof of the advice.  Based on lack of evidence, the assessment was upheld.  (Decision, Hearing No. 107,751, Texas Comptroller of Public Accounts, July 23, 2014, released September 2014)


President Barack Obama has signed federal legislation extending the Internet Tax Freedom Act (ITFA) through December 11, 2014 as part of the joint resolution which made continuing appropriations for fiscal year 2015. The ITFA was previously set to expire on November 1, 2014. The ITFA bars state and local governments from imposing multiple or discriminatory taxes on electronic commerce and taxes on Internet access.


For an update to this news item, see Internet Tax Freedom Act Extended Until October 1, 2015, Permanent Extension Introduced.


(P.L. 113-164 (H.J. Res. 124), 113th Congress, 2nd Session, Laws 2014)



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