Sales of Digital Security Certificates Not Taxable in Texas

A web security services company was not liable for Texas sales tax on sales of digital (SSL) certificates which allowed customers to establish secure, encrypted connections over the Internet. The company would authenticate a customer’s identity then issue a digital certificate that contained the customer’s public key and metadata. The customer could put the digital certificate on its web server. The digital certificates did not fall within the definition of a taxable computer program since they did not provide a set of coded instructions designed to process data or perform a task. The digital certificates represented an intangible. Since the digital certificate was not computer software or other tangible personal property, it was not subject to tax. The company’s service of verifying the identity of a customer and providing a digital certificate did not constitute a taxable data processing service since the company was not compiling and producing records of transactions, maintaining information, or entering and retrieving information. While an end user’s web browser could use the public key contained in a customer’s digital certificate to encrypt communications (which is considered data processing), the encryption and decryption was not performed by the company but by software built into the end users’ web browsers. The company’s authentication services, provision of digital certificates, and resolution services were not taxable as information services, since the company was not furnishing general or specialized news or other current information. The services also did not fall under the definition of a telecommunications service.(Letter No. 201608960L (PLR #152600379), Texas Comptroller of Public Accounts, August 19, 2016)

Posted on September 28, 2016