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| Eric Reeves eric@ghg.net |
| GHG Corporation tilex@alluvium.com |
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---------- Forwarded message ----------
The new tax laws passed by the 76th Legislature are now in effect and the
revised Internet sales tax policies go into effect Oct. 1. Since this is
new territory TISPA has asked for some preliminary guidelines from Al Van
Allen, Internet tax guru of the Comptroller's Office.=20
(He spoke on this topic at the last TISPA meeting, answering questions for
nearly an hour. Though he may be the dreaded Tax Collector, Al tries very
hard to give TISPA members accurate, helpful information and assistance.)=
=20
Further general information on tax policy and questions is available by
contacting: Tax Policy, Comptroller of Public Accounts.=20
email: <tax.help@cpa.state.tx.us>=20
toll free phone: 1-800-531-5441
(If you are unable to get the information you need from their local office
or general info channel, Al also posted his direct phone and email below.)=
=20
Gene Crick
---------- Forwarded message ----------
Date: Thu, 02 Sep 1999 15:12:03 -0600
From: Al Van Allen <al.van.allen@cpa.state.tx.us>
To: Gene Crick <gcrick@MAIN.Org>
Subject: Re: Comptroller Tax Questions
September 2, 1999
Gene Crick
Texas Internet Service Providers Association
<gcrick@main.org>
Dear Gene:
I don't have a summary available, but thought it might be helpful if I
sent you some sample information that has been sent to other ISPs (also
available on our STAR System). This contains material from several letters
so you will probably find some duplicate information. As we discussed, I
have not as yet received a consolidated list of questions from the
Association.=20
Response: Many Internet-related services are subject to sales tax. Here
is a list of issues we have addressed and their tax treatment. =B7 Charges
for providing access to the Internet are taxed as information services. =B7
Scanning information or data into the net and the creation of =D2HTML=D3
documents are taxable data processing services. =B7 Creating graphics or
logos using a drawing program for a client=D5s homepage is taxable graphic
arts. =B7 Posting web pages on a server is a taxable data processing
service. =B7 Transmitting information between automated clearing houses and
merchants is a telecommunications service. =B7 Providing access to
information (data bases maintained by the seller of the service) on the
Internet is a taxable information service. =B7 Separate fees for licensing
and completing applications for domain names are not taxable. =B7 Charges
for continuing education classes on the Internet are not taxable. =B7
Charges for submitting website information to search engines are not
subject tax. =B7 Sales of maps over the Internet are taxed as information
services. =B7 Sales of software over the Internet are subject to sales tax
if the software is downloaded to a location in Texas. No tax is due on
sales of software downloaded to a location outside of Texas. The retailer
must retain records to show thecustomer's out-of-state location if the
software is downloaded to a point outside of Texas.=20
I am enclosing Rules 3.330 regarding data processing services and 3.342
regarding information services as an attachment to this email for your
reference. A complete set of rules, along with the text of the Tax Code,
and a wealth of other information is available through our website at
<window.state.tx.us> through the "Texas Taxes" window. You can also
download an application for a sales tax permit through this location.=20
Consultation services central to which are the expert or professional
opinions of the consultant are not taxable if they are not related to
sales of taxable services or tangible property. Consultation services
related to the sale of data processing or other taxable services are
subject to sales tax.=20
We publish a bulletin entitled Guidelines for Collecting Local Sales and
Use Tax at <http://www.window.state.tx.us/taxinfo/taxpubs/tx94_105.html>.=
=20
Effective October 1, 1999, Senate Bill 441 will change the tax treatment
of Internet related services.=20
The terms "Internet" and "Internet Access Service" will be separately
defined in Tax Code Sections 151.00303 and 151.00394 respectively.=20
Sec. 151.00393. INTERNET. "Internet" means collectively the myriad of
computer and telecommunications facilities, including equipment and
operating software, that comprise the interconnected worldwide network of
networks that employ the Transmission Control Protocol/Internet Protocol,
or any predecessor or successor protocols to the protocol, to communicate
information of all kinds by wire or radio.=20
Sec. 151.00394. INTERNET ACCESS SERVICE. (a) "Internet access service"=
=20
means a service that enables users to access content, information,
electronic mail, or other services offered over the Internet and may also
include access to proprietary content, information, and other services as
part of a package of services offered to consumers. The term does not
include telecommunications services.=20
(b) "Internet access service" does not include and the exemption under
Section 151.325 does not apply to any other taxable service listed in
Section 151.0101(a), unless the taxable service is provided in conjunction
with and is merely incidental to the provision of Internet access service.=
=20
(c) On and after October 1, 1999, "Internet access service" is not
included in the definitions of "data processing service" and "information
service."=20
The bill also amends Tax Code Chapter 151 by adding section 151.325 which
exempts from sales tax the first $25 of a monthly charge for Internet
access service.=20
Sec. 151.325. BASIC FEE FOR INTERNET ACCESS SERVICE. (a) The sale, use,
or other consumption in this state of Internet access service is exempted
from the taxes imposed by this chapter in an amount not to exceed the
first $25 of a monthly charge. (b) The exemption provided by this section
applies without regard to: (1) whether the Internet access service is
bundled with another service, including any other taxable service listed
in Section 151.0101(a); or (2) the billing period used by the service
provider. (c) The exemption in this section applies to the total sales
price the service provider charges for Internet access to a purchaser,
without regard to whether the service provider charges one lump-sum amount
or separately bills the purchaser for each user.
The bill further amends Tax Code Chapter 151 by adding section 151.351
which exempts from the tax 20 percent of the value of information services
and data processing services purchased on and after October 1, 1999.=20
Sec. 151.351. INFORMATION SERVICES AND DATA PROCESSING SERVICES. There
is exempted from the taxes imposed by this chapter 20 percent of the value
of information services and data processing services.=20
The text of Senate Bill 441 may be found through the "Texas Legislature
Online" website at <http://www.capitol.state.tx.us/tlo/billnbr.htm>.
**************************************
Thank you for your recent letter which is restated in part with response
below.
XXXXX is an Internet Service Provider (ISP). XXXXXX has customers that
have two separate logins or dial-up accounts. Below is an example:=20
Monthly Internet Charge $24.95
Additional Login Account $10.00
Effective October 1, 1999, Tax Code Section 151.325 will exempt the first
$25.00 of this customer's bill. In this situation, the additional $9.95
charged on the bill will be subject to sales tax regardless of the number
of invoices issued. Tax Code Section 151.325 is restated below for your
reference. Please refer to Subsection (c).=20
Sec. 151.325. BASIC FEE FOR INTERNET ACCESS SERVICE. (a) The sale, use,
or other consumption in this state of Internet access service is exempted
from the taxes imposed by this chapter in an amount not to exceed the
first $25 of a monthly charge. (b) The exemption provided by this section
applies without regard to: (1) whether the Internet access service is
bundled with another service, including any other taxable service listed
in Section 151.0101(a); or (2) the billing period used by the service
provider. (c) The exemption in this section applies to the total sales
price the service provider charges for Internet access to a purchaser,
without regard to whether the service provider charges one lump-sum amount
or separately bills the purchaser for each user.=20
The text of Senate Bill 441 may be found through the "Texas Legislature
Online" website at <http://www.capitol.state.tx.us/tlo/billnbr.htm>.
I should also point out that the procurement of dedicated incoming
telephone lines is integral to the performance of Internet access service.=
=20
That is also true of the T1 line that you use to link to the Internet
backbone. Accordingly, you may issue a resale certificate to the local
exchange company (LEC) in lieu of tax. This policy will not change after
October 1, 1999 simply because a portion of the customers bill may be
exempted under Senate Bill 441. Internet access service will be a taxable
service and the purchase of telecommunications services that are integral
to the performance of that service may still be purchased tax free for
resale.=20
While the LEC is authorized to accept your resale certificate, it is not,
by law, required to do so. You may take credit on your sales tax return to
offset sales tax paid to a LEC that refuses to accept your resale
certificate for such purchases. You will want a copy of Rule 3.338
available at <ht.//www.sos.state.tx.us/tac/34/I/3/O/3.338.html> for your
files.=20
Please note that you may not offset one local taxing jurisdictions tax
against another's.
I understand that you have customers who host their website on your server
and you charge for this service. For example:=20
Monthly Internet Charge $24.95
Monthly Web Hosting $19.95
Effective October 1, 1999, the $24.95 charge for Internet access will be
exempt from sales tax. Your charges for web hosting are taxable as data
processing services. Effective October 1, 1999, Senate Bill 441 will
change the tax treatment of data processing and information services by
exempting from sales tax 20 percent of the value of information services
and data processing services. Accordingly, effective October 1, 1999 20%
of the $19.95 charge for web hosting will be exempt from sales tax.=20
You have customers who co-locate their computers at your facilities that
you charge for and give them access to the Internet, which is included in
the charge.=20
XXXXXXX, provided the following comments: "Co-Location is a service where
a customer (business) places a computer in our facility. We are charging
for the bandwidth usage. The customer uses the bandwidth for web hosting,
email, chat rooms, and other Internet services. Right now we charge sales
tax unless they have on file a exempt/reseller certificate."=20
Sales of bandwidth are subject to sales tax as sales of telecommunications
services. Individuals selling server space may purchase the bandwidth tax
free for resale since they are providing a taxable data processing
service.=20
You have dedicated customers that exceed the $25.00 tax-exempt amount.=20
You asked whether the full amount would be taxable?=20
Effective October 1, 1999, the first $25 of a monthly charge for Internet
access is exempt from sales tax. As defined in Senate Bill 441, "Internet
access service" means a service that enables users to access content,
information, electronic mail, or other services offered over the Internet
and may also include access to proprietary content, information, and other
services as part of a package of services offered to consumers. The term
does not include telecommunications services.=20
"Internet access service" does not include and the exemption under Section
151.325 does not apply to any other taxable service listed in Section
151.0101(a), unless the taxable service is provided in conjunction with
and is merely incidental to the provision of Internet access service.=20
The fact that an Internet service provider provides a customer with a
dedicated line will not cause the loss of the exemption.
You offer Web based courses and ask if charges for these would be
taxable?
Response: Your charges for providing Internet-based courses of
instruction are not subject to sales tax. Your firm will owe tax on any
purchases of tangible property that it makes to perform the training.=20
This opinion is rendered based on the facts presented. If there are
additional or different facts, the opinion may change.
You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line
is 512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is <tax.help@cpa.state.tx.us>.=20
Sincerely,
Al Van Allen
Tax Policy Division
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