Texas has updated its sales tax rule based on previously enacted legislation and department policy for computer hardware, programs, services, and sales to include the following provisions:
In addition, the amended rule includes definitions for “computer program,” “contract programming,” and “Internet hosting.” There are significant concerns with the Department’s position regarding the allocation of the price of a computer program that is used in multiple states. Since a computer program is defined as tangible personal property, the Department takes the position that cannot be concurrently used in multiple locations. The Department did withdraw a proposed amended that would have assessed Texas tax on 100% of the price of a computer program installed on a computer outside of Texas if any use occurs in Texas but has indicated they will continue to look at this issue. At this time, it is recommended that any company that has the option to install software outside of Texas should do so to avoid tax on 100% of the price. It is expected that there will be challenges as states that tax based on user location may not provide a credit for the tax paid to Texas. The new rule does not address Software as a Service but will likely be included in a future amendment. (34 TAC 3.308, Texas Comptroller of Public Accounts, Effective January 22, 2018)