Texas Issues Guidance on Taxability of Certification Services and Registration Fees Provided to Learning Centers

Texas has issued a private letter ruling regarding the taxability of certification services and registration fees provided to third party learning centers. The taxpayer is a not-for-profit entity that sets standards related to workforce safety and competence for the energy industry and develops vocational certification programs related to those industry standards. The taxpayer does not provide training directly to students. Rather, the taxpayer provides certification services to third party learning centers that provide training to students. The taxpayer maintains guidance on the required learning outcomes, and the learning centers create training materials and deliver training programs based on the taxpayer’s standards. After a learning center creates course materials, the taxpayer performs a review to verify that the taxpayer’s standards are met. The taxpayer then conducts an onsite or virtual visit of the learning center’s facility and observes training to verify that the learning center has the recommended equipment and facilities to provide approved programs.

The taxpayer also maintains an online repository of courses taken by individual students. This information can be used by students and employers to track a student’s completed courses and training certifications. The taxpayer charges learning centers a registration fee to store, update, and add new certificate information on the online repository. The registration fee is a monthly charge based on the number of students that receive certification for completing a course.

The private letter ruling states that the taxpayer’s certification services are not subject to Texas sales and use tax. The certification services provided by the taxpayer are not included in the state’s enumerated list of taxable services.

However, the registration fee is subject to Texas sales and use tax as a data processing service. Adding new student certifications, updating the status of student certifications, and maintaining the information in the online repository constitute data entry and the computerized storage and manipulation of information, which are included in the state’s definition of “data processing service.” Therefore, the taxpayer is providing a taxable data processing service. Note that Texas exempts 20% of the charge for data processing services. The taxpayer is responsible for collecting and remitting Texas sales and use tax on 80% of its monthly registration fee from learning centers. (Letter No. 202407028L, Texas Comptroller of Public Accounts, July 25, 2024)

Posted on October 14, 2024