Texas Sales and Use Tax Treatment of Software and Computer Programs

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Jason A. Hendrix

Jason A. Hendrix



Jason Hendrix primarily focuses on assisting individuals and businesses with a variety of state tax matters, including Texas sales and use tax, Texas franchise tax, mixed beverage taxes, and motor vehicle taxes. He has several years of experience assisting clients involving disputes with the Texas Comptroller at all levels, including pre-audit, audit, administrative appeals, and collections. He also has experience assisting clients with matters involving the Texas Workforce Commission, as well as corporate matters, including formation and structuring, and federal tax matters.

The function and utility of computers has changed and evolved at an exponential rate over the last several years, and will likely continue to do so, particularly as advancements like artificial intelligence become integrated in more industries. Unsurprisingly, current Texas sales and use tax authority surrounding the use of computers is complex and can create problems for taxpayers who provide computer programs and software, and perform related services.  The following types of transactions involving software and computer programs are discussed briefly below:

Sales of Computer Programs or Software 

Comptroller Rule 3.308(c)(1) provides that “[t]he sale, lease, or license of a computer program is a sale of tangible personal property.  Tax is due when the computer program, or a license to use the computer program, is transferred for consideration in Texas, or stored, used, or consumed in Texas, in electronic form or on physical media.”  [1] This stems from the Comptroller’s treatment of software as “tangible personal property”, the sale of which is generally taxable in Texas.  [2]

Computer Program or Software Repair, Maintenance, or Restoration

The Comptroller also considers the repair, maintenance, or restoration of a computer program or software to be taxable.  [3] Rule 3.308 does not provide a full definition of these services, but does state “[c]omputer program repair, maintenance, or restoration includes error correction, technical fixes, and technical support, whether provided over the Internet or over the phone.”  [4]

Contract Programming Services

In contrast to the above, “contract programming” is considered a nontaxable service. [5] “Contract programming” is defined in Comptroller Rule 3.308(a)(2) to mean “[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.”  [6] This rule also includes the following examples of “contract programming”:

Potential Texas Sales and Use Tax Issues

As the above framework makes clear, the Comptroller’s rules regarding computer programs and software are nuanced and contain the potential for confusion between taxable and nontaxable transactions.  Both the sale and repair, maintenance, and restoration of a computer program are generally subject to Texas sales tax.  And although “contract programming” is not subject to tax, its definition includes elements that reference both the sale and the repair, maintenance, or restoration of computer programs.  As is often the case, the tax treatment of a particular transaction will rely on a detailed analysis of the facts.


State and Local Tax Services

Freeman Law works with tax clients across all industries, including manufacturing, services, technology, oil and gas, financial services, and real estate. State and local tax laws and rules are complex and vary from state to state. As states confront budgetary deficits due to declining tax revenues and increased government spending, tax authorities aggressively enforce state tax laws to recapture lost revenues. 

At Freeman Law, our experienced attorneys regularly guide our clients through complex state and local tax issues—issues that are frequently changing as states seek to keep pace with technology and the evolution of business. Staying ahead requires sophisticated legal counsel dedicated to understanding the complex state tax issues that confront businesses and individuals. Schedule a consultation or call (214) 984-3000 to discuss your local & state tax concerns and questions. 


[1] 34 Tex. Admin. Code § 3.308(c)(1)(A).

[2] See Tex. Tax Code §§ 151.051, 151.010.

[3] 34 Tex. Admin. Code § 3.308(c)(2).

[4] Id.

[5] 34 Tex. Admin. Code § 3.308(c)(4).

[6] 34 Tex. Admin. Code § 3.308(a)(2).

[7] 34 Tex. Admin. Code § 3.308(a)(2)(A)(i)-(iii).