Online learning courses ruled nontaxable in Texas

Subscriptions to online learning services are not taxable in the state of Texas, according to a July ruling in a private letter published by the state comptroller, but planning services purchased by teachers are subject to tax.

The comptroller classified a product used by teachers to manage their classroom and curriculum a “data processing service,” including “word processing, data entry, data retrieval, data search, information complication, and other computerized data and information storage or manipulation,” which would make it taxable.

The comptroller noted that the planning service was purchased in a bundle with one of the nontaxable courses, but because they were sold as a bundle, explaining “when a single charge is made for both a taxable and nontaxable service, the entire charge is presumed taxable if the taxable charge exceeds 5 percent of the total charge.”

If a single charge is made including both taxable and nontaxable products services, then the entire transaction is deemed taxable when the taxable portion is greater than 5% of the total transaction.

A number of states tax services, but not every state. Taxpayers should review what services are taxable in the state where the service is performed or benefit received (depending on the state) and charge sales tax appropriately. On the buying side, look for opportunities to ensure your sales tax spend is minimized and in compliance with the state laws. Bundling, itemization, taxability, and exemptions are all key to ensuring a properly coded sales tax transaction.

(Texas Comptroller of Public Accounts, Private Letter Ruling No. 20201207154851, July 10, 2022)

Posted on August 11, 2022