Texas rules payment card management program is a nontaxable payment processing service

A private letter ruling by the Texas Comptroller of Public Accounts found in favor of a taxpayer, defining its payment card management (PCM) program as a nontaxable payment processing service, not a taxable data processing service.

The taxpayer was contracted with regulatory-approved banks to assist banking customers in managing and customizing their debit and prepaid cards’ usage. Due to the nature of the relationship with the banks, the comptroller found that the settling of electronic payments did not simply qualify as data processing. The contracts do not give the taxpayer authority to issue payment cards and only allow access to the card networks to settle the payments for the applicable transactions.

This private letter ruling differs from the states’ typical treatment for data processing services due to the nature of contracts with the regulatory-approved banks. Data processing services are typically considered taxable in Texas.

It is worthwhile to consider this letter ruling when looking to taxability of data processing services sponsored by a financial institution.

(Texas Comptroller of Public Accounts, TX—Letter No. 202204028L, April 29, 2022)

Posted on August 29, 2022