Mobile Application Program and Bundled Services Subject to Texas Sales Tax

In a private letter ruling, the Texas Comptroller found a taxpayer’s mobile application program and bundled services taxable as data processing services. The taxpayer sells nutritional and dietary products through a network of independent distributors. The taxpayer plans to offer a mobile application program (MAP) to its distributors so they can access their sales data for a monthly fee. The MAP is provided through a licensing agreement with a third-party company. The taxpayer also plans to offer a bundle of services for a single monthly fee, which would include a dashboard, a personal website, and the MAP. If a distributor signs up for the MAP or service bundle, the distributor is granted access to its data stored on the taxpayer’s server.

Under Texas law, data processing services are taxable. Data processing services are defined as “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information. It specifically includes… computerized data and information storage or manipulation…”

The taxpayer’s provision of access to distributor data stored on its own database and a personal website meets the definition of data processing services in Texas and is thus taxable. There is, however, a 20% exemption on taxable data processing services. The taxpayer must collect and remit tax on 80% of the value of the MAP and bundled service charges. Additionally, because the taxpayer purchases data processing services through a licensing agreement with a third-party for eventual resale to its distributors, the taxpayer could issue a resale certificate to the third-party company instead of pay tax on its purchase of the MAP. (Decision, Hearing No. 20171017131055, Texas Comptroller of Public Accounts, August 13, 2018)

Posted on October 29, 2018