The Texas Comptroller issued a private letter ruling discussing the taxability of hosting and repair services for machines used for cryptocurrency mining.
The taxpayer charges its customer a fee based on power usage to host cryptocurrency mining hardware machines in the taxpayer’s facility. The taxpayer’s customer owns the machines, and the customer has full control of the machines remotely. The taxpayer does not have access to the data or internal processing of the machines. The taxpayer charges an all-inclusive fee for the following.
For an additional charge, the taxpayer provides technical services for more complicated diagnosis, repair, and replacement of machines.
In Texas, website hosting is a taxable data processing service. In this case, the taxpayer does not provide taxable web hosting services since it does not have access to the data or internal processing of the customer’s machines. The taxpayer does not provide any cloud computing services. Providing its customer with a secure location with internet connectivity and machine monitoring is not taxable data processing, per the private letter ruling.
In Texas, security services are defined as any service for which a license is required under the state’s applicable codes. The taxpayer provides physical security for the machines by locking and securing the building. Additionally, the taxpayer restricts access to the machines. Providing this type of service does not require a license. As a result, these services provided by the taxpayer are not taxable security services. The hosting services provided by the taxpayer are not data processing services or security services and are therefore not subject to Texas sales and use tax.
However, Texas subjects to tax, the repair, remodeling, maintenance, and restoration of tangible personal property. When the taxpayer repairs and replaces its customer’s machines, it is performing a taxable repair of tangible personal property. As a result, the repair and replacement of machines is subject to Texas sales and use tax. (Comptroller Letter No. 202411011L, Texas Comptroller of Public Accounts, November 15, 2024)