Information Technology Services and the Texas Sales and Use Tax

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TL Fahring focuses on helping individuals and businesses with a wide variety of matters involving state, federal, and international taxation. He has represented clients in all stages of federal and state tax disputes, including audits, administrative appeals, litigation, and collection matters. Mr. Fahring also has used his tax knowledge to assist clients in planning complex domestic and international transactions, including advising as to potential reporting and withholding requirements.

Mr. Fahring received his J.D. from the University of Texas School of Law, where he graduated with high honors and was inducted into the Order of the Coif and Chancellors honors societies. After clerking for a year at the Texas Eleventh Court of Appeals, he attended New York University School of Law, where he received an LL.M. (Master of Laws) in Taxation and served as a student editor on the Tax Law Review.

Information Technology Services and the Texas Sales and Use Tax

Under certain circumstances, information technology and associated services may be subject to Texas sales and use tax. The specifics depend on how the Texas Tax Code and Texas Comptroller’s rules characterize a particular technology and/or service. Here’s a quick explainer.

Sale of a Computer Program

For starters, the sale, lease, or license of a computer program is subject to sales and use tax as the sale of tangible personal property.[1]  For purposes of sales and use tax, a “computer program” is defined as “a series of instructions that are coded for acceptance or use by a computer system and that are designed to permit the computer system to process data and provide results and information.”[2]

The sales price of a computer program includes all charges in connection with the sale of the program, including charges for installation, modification, repair, maintenance, or restoration.[3]

Contract Programming

However, contract programming is not taxable.[4] “Contract programming” means “[s]ervices to create or develop a new computer program, or to repair, maintain, modify, or restore an existing computer program, when the person performing the services did not sell, and retains no rights in, the computer program being created, developed, repaired, maintained, modified, or restored.”[5] Contract programming includes:

    1. writing a new computer program to perform a particular function for the customer where all rights in the program are transferred to the customer;
    2. customizing a computer program owned by the customer or licensed to the customer by a third party; or
    3. modifying a computer program or performing repair, maintenance, or restoration on a computer program that the programmer wrote for the customer under a prior contract programming agreement.[6]

Repair, Maintenance, or Restoration of a Computer Program

Charges for computer program repair, maintenance, or restoration by a person who sells a computer program are taxable as the repair of tangible personal property.[7] Maintenance includes error correction, improvements, or technical support, whether provided over the internet or over the phone.[8]

On the other hand, charges for the repair, maintenance, or restoration of a computer program by someone other than the person who sells the program are not taxable.[9]

Data Processing Services

Data processing services are generally subject to sales and use tax.[10] The tax is imposed on 80% of the value of the data processing service.[11]

“Data processing” is defined as “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information.”[12]

The Texas Tax Code specifically provides that data processing includes “word processing, data entry, data retrieval, data search, information compilation, payroll and business accounting data production, and other computerized data and information storage or manipulation.”[13]  The Comptroller’s rule on data processing elaborates that data processing includes “entering inventory control data for a company, maintaining records of employee work time, filing payroll tax returns, preparing W-2 forms, and computing and preparing payroll checks.”[14]  Other items that the Comptroller has determined to be data processing include charges for software as a service[15] and website design, creation, implementation, maintenance, and hosting.[16]

But data processing services don’t include the transcription of a medical dictation by a medical transcriptionist, certain encryption services for electronic payment information, certain payment processing services.[17]

Data processing services also don’t include “the use of a computer by a provider of other services when the computer is used to facilitate the performance of the service or the application of the knowledge of the physical sciences, accounting principles, and tax laws . . . .”[18]

Information Services

Information services are subject to sales and use tax.[19] The tax is imposed on 80% of the value of the information service.[20]

The Texas Tax Code generally defines an “information service” as “furnishing general or specialized news or other current information, including financial information, . . . or . . . electronic data retrieval or research.”[21] The Comptroller’s rule on information services clarifies that taxable information services include “[i]nformation that is gathered, maintained, or compiled and made available by the provider of the information service to the public or to a specific segment of industry for a consideration . . .”[22]

The following are examples of taxable information services:

    1. newsletters;
    2. scouting reports and surveys, including those used in sports and the oil and gas and related industries;
    3. mailing lists, and bad check lists (only that percentage which represents names of persons located in Texas is taxable);
    4. real estate listings;
    5. financial, investment, stock market, or bond rating, or financial reports, other than charges to a person by a financial institution for account balance information;
    6. news clipping services and wire services; and
    7. abstracts of title and other information provided by title plants.[23]

Information services that are considered to be nontaxable are the sale:

    1. the sale of information that is gathered or compiled on behalf of a particular client and that is of a proprietary nature to that client, including opinion polls and management consultant reports;
    2.  the sale of information primarily derived from laboratory, medical, or exploratory testing or experimentation, such as geophysical survey information, polygraph test, and medical test results; and
    3. information required to be furnished pursuant to the Open Records Act.[24]

Information services may be distinguished from data processing services in that data processing services involve data provided by the customer, while information services tend to involve data provided by an unrelated third party (although this distinction is still up for debate).[25]

Final Thoughts

Determining the taxability of information technology and associated services can be taxing. If you have any questions, don’t hesitate to contact us for a free consultation.




[1] See Tex. Tax Code §§ 151.005 (“Sale” or “Purchase”), 151.009 (“Tangible Personal Property”), 151.010 (Taxable Item), 151.051(a) (Sales Tax Imposed), 151.101(a) (Use Tax Imposed); see also 34 Tex. Admin. Code § 3.308(c)(1)(A) (Computers–Hardware, Computer Programs, Services, and Sales).


[2] Tex. Tax Code § 151.0031 (“Computer Program”); 34 Tex. Admin. Code § 3.308(a)(1).


[3] 34 Tex. Admin. Code § 3.308(c)(1)(B); see also Tex. Tax Code 151.007(a), (b) (“Sales Price” or “Receipts”).


[4] 34 Tex. Admin. Code § 3.308(c)(4).


[5] Id. § 3.308(a)(2).


[6] Id. § 3.308(a)(2)(A).


[7] Id. § 3.308(c)(2).


[8] Id.


[9] See STAR Accession No. 9910802L (Oct. 15, 1999).


[10] See Tex. Tax Code §§ 151.0035(a) (“Data Processing Service”), 151.010, 151.0101(a)(12) (“Taxable Services”), 151.051(a)(12), 151.101(a); 34 Tex. Admin. Code § 3.330(b) (Data Processing Services).


[11] See Tex. Tax Code § 151.351 (Information Services and Data Processing Services); 34 Tex. Admin. Code § 3.330(b).


[12] 34 Tex. Admin. Code § 3.330(a)(1).


[13] Tex. Tax Code §§ 151.0035(a)(1); see also 34 Tex. Admin. Code § 3.330(a)(1).


[14] 34 Tex. Admin. Code § 3.330(a)(1).


[15] Comptroller’s Decision No. 114,087 (2020); STAR Accession No. 200805095L (May 28, 2008).


[16] STAR Accession Nos. 202010013L (Oct. 22, 2020), 200304802L (April 1, 2003).


[17] Tex. Tax Code § 151.0035(b).


[18] 34 Tex. Admin. Code § 3.330(a)(1).


[19] See Tex. Tax Code §§ 151.0038(a) (“Information Service”), 151.010, 151.0101(a)(10), 151.051(a), 151.101(a); 34 Tex. Admin. Code § 3.342(b) (Information Services).


[20] See Tex. Tax Code § 151.351; 34 Tex. Admin. Code § 3.342(b).


[21] Tex. Tax Code § 151.0038(a).


[22]  34 Tex. Admin. Code § 3.342(a)(6).


[23]  Id. § 3.342(a)(6).


[24]  Id. § 3.342(a)(5) (Information Services).


[25] See Instill Corp. v. Hegar, No. 03-18-00374-CV (Tex. App.—Austin May 31, 2019, pet. denied); 34 Tex. Admin. Code § 3.342(a)(1).