Part 1.
COMPTROLLER OF PUBLIC ACCOUNTS
Chapter 3.
TAX ADMINISTRATION
Subchapter O. STATE SALES AND USE TAX
34 TAC §3.330
The Comptroller of Public Accounts proposes an amendment
to §3.330, concerning data processing services. The amendment redefines
data processing services reflecting changes made in Senate Bill 441, 76th
Legislature, 1999, effective October 1, 1999, regarding Internet access service
and reduces the taxable sales price to 80% of the amount billed for data processing
services. The amendment also adds subsections (a)(2) and (a)(3) defining the
terms Internet and Internet access.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the amended rule will be in effect there will be no significant
revenue impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the amended rule is in effect, the public benefit anticipated as a result
of enforcing the rule will be in providing new information regarding tax responsibilities.
The amendment would have no significant fiscal impact on small businesses.
There is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under the Tax Code, §111.002,
which provides the comptroller with the authority to prescribe, adopt, and
enforce rules relating to the administration and enforcement of the provisions
of the Tax Code, Title 2.
The amendment implements the Tax Code, §151.00393 and §151.00394.
§3.330.Data Processing Services.
(a)
Definitions. The following words and terms,
when used in this section, shall have the following meanings, unless the context
clearly indicates otherwise.
(1)
[
(2)
Internet - 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.
(3)
Internet access service - 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. Internet access service does not include any other taxable service,
unless the taxable service is provided in conjunction with and is merely incidental
to the provision of Internet access service. Individuals providing Internet
access should refer to §3.366 of this title (relating to Internet Access
Services).
(b)
Hold permits. All providers of data processing services
must obtain [
(c)
Resale certificates.
(1)
Providers of data processing services may issue a resale
certificate in lieu of tax to suppliers of tangible personal property only
if care, custody, and control of the property is transferred to the client.
For example, a service provider purchases magnetic tape to transfer the results
of data processing services to customers. The tape is transferred to the customer,
and the customer owns and uses the tape to review the results of the data
processing service. The service provider may purchase the tape tax free by
issuing a resale certificate. Tax is due on the total amount charged the customer,
including amounts for the tape and for the services.
(2)
A resale certificate may be issued for a service if the
buyer intends to transfer the service as an integral part of taxable services.
A service will be considered an integral part of a taxable service if the
service purchased is essential to the performance of the taxable service and
without which the taxable service could not be rendered.
(3)
A resale certificate may be issued for a taxable service
if the buyer intends to incorporate the service into tangible personal property
which will be resold. If the entire service is not incorporated into the tangible
personal property, it will be presumed the service is subject to tax and the
service will only be exempt to the extent the buyer can establish the portion
of the service actually incorporated into the tangible personal property.
If the buyer does not intend to incorporate the entire service into the tangible
personal property, no resale certificate may be issued, but credit may be
claimed at the time of sale of the tangible personal property to the extent
the service was actually incorporated into the tangible personal property.
(d)
Unrelated services.
(1)
A service will be considered as unrelated if:
(A)
it is neither a data processing service, nor a service
taxed under other provisions of the Tax Code, Chapter 151;
(B)
it is of a type which is commonly provided on a stand-alone
basis; and
(C)
the performance of the service is distinct and identifiable.
Examples of such a service would be consultation, development of and preparation
of feasibility studies, design and development, or training.
(2)
Where nontaxable unrelated services and taxable services
are sold or purchased for a single charge and the portion relating to taxable
services represents more than 5.0% of the total charge, the total charge is
presumed to be taxable. The presumption may be overcome by the data processing
service provider at the time the transaction occurs by separately stating
to the customer a reasonable charge for the taxable services. However, if
the charge for the taxable portion of the services is not separately stated
at the time of the transaction, the service provider or the purchaser may
later establish for the comptroller, through documentary evidence, the percentage
of the total charge that relates to nontaxable unrelated services. The service
provider's books must support the apportionment between exempt and nonexempt
activities based on the cost of providing the service or on a comparison to
the normal charge for each service if provided alone. If the charge for exempt
services is unreasonable when the overall transaction is reviewed considering
the cost of providing the service or a comparable charge made in the industry
for each service, the comptroller will adjust the charges and assess additional
tax, penalty, and interest on the taxable services.
(3)
Charges for services or expenses directly related to and
incurred while providing the taxable service are taxable and may not be separated
for the purpose of excluding these charges from the tax base. Examples would
be charges for meals, telephone calls, hotel rooms, or airplane tickets.
(e)
Service benefit location. If both the data processing service
provider and the customer are located in Texas, Texas tax is due.
(f)
Service benefit location--multi-state customer.
(1)
To the extent a data processing service is used to support
a separate, identifiable segment of a customer's business (other than general
administration or operation of the business) the service is presumed to be
used at the location where that part of the business is conducted.
(2)
If that part of the business is conducted at locations
both within and outside the state, the service is not taxable to the extent
it is used outside Texas. A multi-state customer may use any reasonable method
for allocation which is supported by business records.
(3)
A multi-state customer purchasing data processing services
for the benefit of both in-state and out-of-state locations is responsible
for issuing to the data processing service provider an exemption certificate
asserting a multi-state benefit, and for reporting and paying the tax on that
portion of the data processing charge which will benefit the Texas location.
A data processing service provider that accepts such a certificate in good
faith is relieved of responsibility for collecting and remitting tax on transactions
to which the certificate relates.
(4)
The customer's books must support the assignment of the
service to an identifiable segment of the business, the determination of the
location or locations of the use of the service, and the allocation of the
taxable charge to Texas.
(5)
To the extent the use of the service cannot be assigned
to an identifiable segment of a customer's business, the service is presumed
to be used to support the administration or operation of the customer's business
generally. The service is presumed to be used at the customer's principal
place of business. The principal place of business means the place from which
the trade or business is directed or managed.
(g)
Local taxes.
(1)
For local sales tax purposes, city, county, transit authority,
and/or special purpose district sales taxes are due if the data processing
service provider has only one place of business (the location where clients
request service) within the boundaries of a local taxing entity. Local sales
tax must be collected based upon the tax rate at that location, except that
no MTA or CTD sales tax is due on services provided at a location outside
the boundaries of the transit area. In the case of multiple locations, if
an order for service is placed at one location but the service is provided
at another location, the place of business from which the service is provided
will determine to which local taxing entity the tax is allocated.
(2)
For the purposes of the local use tax, if a place of business
is outside the boundaries of a local taxing entity, the data processing service
provider will be required to collect local use tax if the client is within
the local taxing entity and the service provider has representation in the
local taxing entity as outlined in §3.286 of this title (relating to
Seller's and Purchaser's Responsibilities). Even if the service provider is
not required to collect local use tax, the client is still liable for the
tax if the service is performed or a benefit is derived from the service within
the boundaries of a local taxing entity.
(A)
An in-state customer purchasing data processing services
for the benefit of locations in more than one local taxing entity is responsible
for issuing to the data processing service provider an exemption certificate
claiming a multi-city benefit and for determining the extent of benefit for
each entity. The local use tax for each entity must be reported, allocated,
and paid by the customer. A data processing service provider that accepts
in good faith an exemption certificate claiming a multi-city benefit is relieved
of responsibility for collecting and remitting local tax on transactions to
which the certificate relates.
(B)
A multi-state customer purchasing data processing services
for the benefit of both in-state and out-of-state locations is responsible
for issuing an exemption certificate and for reporting and paying local tax
as provided by subsection (f)(3) and (4) of this section.
(h)
Use tax. If a provider of a data processing service is
not doing business in Texas or in a specific local taxing jurisdiction and
is not required to collect Texas tax, it is the Texas customer's responsibility
to report and pay the state and local use tax directly to this office.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on June 6, 2000.
TRD-200003985
Martin Cherry
Deputy General Counsel for Tax Policy and Agency Affairs
Comptroller of Public Accounts
Earliest possible date of adoption: July 23, 2000
For further information, please call: (512) 463-3699
34 TAC §3.342
The Comptroller of Public Accounts proposes an amendment
to §3.342, concerning information services. The amendment redefines "information
services" reflecting changes made by Senate Bill 441, 76th Legislature, 1999,
effective October 1, 1999, regarding Internet access service. The bill also
reduces the taxable sales price to 80% of the amount billed for the information
service. The amendment includes definitions of Internet and Internet access
service and refers providers of Internet access services to §3.366 of
this title (relating to Internet Access Services). The amendment informs taxpayers
that, effective October 1, 1999, 20% of the charge for information services
will be exempt from sales and use tax.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the amended rule will be in effect there will be no significant
revenue impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the amended rule is in effect, the public benefit anticipated as a result
of enforcing the rule will be in providing new information regarding tax responsibilities.
The amendment would have no significant fiscal impact on small businesses.
There is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under the Tax Code, §111.002,
which provides the comptroller with the authority to prescribe, adopt, and
enforce rules relating to the administration and enforcement of the provisions
of the Tax Code, Title 2.
The amendment implements the Tax Code, §151.00393 and §151.00394.
§3.342.Information Services.
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Data processing services - Processing, reformatting, or
manipulating
[
(2)
Information services - Furnishing general or specialized
news or other current information, including financial information, by printed,
mimeographed, electronic, or electrical transmission, or by utilizing wires,
cable, radio waves, microwaves, satellites, fiber optics, or any other method
now in existence or which may be devised, and electronic data retrieval or
research.
The term information services does not include Internet access
service or information services that are provided in conjunction with and
merely incidental to the provision of Internet access service when provided
for a single charge.
(3)
Internet - 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.
(4)
Internet access service - 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. Internet access service does not include any other taxable service,
unless the taxable service is provided in conjunction with and is merely incidental
to the provision of Internet access service. Individuals providing Internet
access should refer to §3.366 of this title (relating to Internet Access
Services).
(5)
Nontaxable information services.
(A)
The sale of information that is gathered
or compiled on behalf of a particular client is not subject to tax if the
information is of a proprietary nature to that client and may not be sold
to others by the person who gathered or compiled the information. Any subsequent
sale of such information by the client for whom the information was gathered
or compiled is subject to tax. Examples include opinion polls and management
consultant reports.
(B)
Any sale of information primarily derived
from laboratory, medical, or exploratory testing or experimentation or any
similar method of direct scientific observation of physical phenomena is not
subject to tax. Examples include, but are not limited to, geophysical survey
information, polygraph test, and medical test results.
(C)
Information required to be furnished pursuant
to the Open Records Act is not subject to sales tax. See §3.341 of this
title (relating to Sales of Governmental Publications, Records, or Documents).
Fees paid when obtaining these documents may be excluded from the tax base
if separately stated when the documents are furnished to clients. Tax will
only be due on the amount over and above the cost of the documents.
(6)
[
(A)
[
(B)
[
(C)
[
(D)
[
(E)
[
(F)
[
(G)
[
(b)
Hold permits. All providers of information
services must obtain Texas sales and use tax permits and collect tax on charges
for information services, or accept properly completed resale, exemption,
or direct payment permit certificates in lieu of collecting tax. See §3.285
of this title (relating to Resale Certificate; Sales for Resale); §3.287
of this title (relating to Exemption Certificates); §3.288 of this title
(relating to Direct Payment Procedures and Qualifications). Effective October
1, 1999, 20% of the total amount charged for information services is exempted
from sales and use tax. The exemption applies to services performed on or
after October 1, 1999. The exemption does not apply to services performed
before the effective date and billed or paid for after the effective date
of the exemption.
(c)
Exempt information services. Sales tax is not due on information
services sold to a newspaper or to a radio or television station licensed
by the Federal Communications Commission, if an exemption certificate is obtained.
The exemption certificate must state that the purchaser is a newspaper with
a general circulation published at least as frequently as weekly, or is a
station licensed by the Federal Communications Commission.
[
[
[
[
(d)
[
(1)
Providers of information service may issue a resale certificate
in lieu of tax to suppliers of tangible personal property only if care, custody,
and control of the property will be transferred to the service provider's
client. For example, an information provider purchases magnetic tape to transfer
information to customers. The tape is transferred to the customer, and the
customer owns and uses the tape to review the information. The information
provider may purchase the tape tax free by issuing a resale certificate. Tax
is due on the total amount charged the customer, including amounts for the
tape and for the services.
(2)
A resale certificate may be issued for a service if the
buyer intends to transfer the service as an integral part of taxable services.
A service will be considered an integral part of a taxable service if the
service purchased is essential to the performance of the taxable service and
without which the taxable service could not be rendered.
(3)
A resale certificate may be issued for a taxable service
if the buyer intends to incorporate the service into tangible personal property
which will be resold. If the entire service is not incorporated into the tangible
personal property, it will be presumed the service is subject to tax and the
service will only be exempt to the extent the buyer can establish the portion
of the service actually incorporated into the tangible personal property.
If the buyer does not intend to incorporate the entire service into the tangible
personal property, no resale certificate may be issued, but credit may be
claimed at the time of sale of the tangible personal property to the extent
the service was actually incorporated into the tangible personal property.
(e)
[
(1)
A service will be considered as unrelated if:
(A)
it is not an information service nor a service taxed under
other provisions of the Tax Code, Chapter 151;
(B)
it is of a type which is commonly provided on a stand-alone
basis; and
(C)
the performance of the unrelated service is distinct and
identifiable. Examples of an unrelated service which may be excluded from
the tax base include consultation, training, expedited filing charges, escrow
fees, or charges for proprietary information.
(2)
Where nontaxable unrelated services and taxable services
are sold or purchased for a single charge and the portion relating to taxable
services represents more than 5.0% of the total charge, the total charge is
presumed to be taxable. The presumption may be overcome by the information
provider at the time the transaction occurs by separately stating to the customer
a reasonable charge for the taxable services. However, if the charge for the
taxable portion of the services is not separately stated at the time of the
transaction, the service provider or the purchaser may later establish for
the comptroller, through documentary evidence, the percentage of the total
charge that relates to nontaxable unrelated services. The information provider's
books must support the apportionment between exempt and nonexempt activities
based on the cost of providing the service or on a comparison to the normal
charge for each service if provided alone. If the charge for exempt services
is unreasonable when the overall transaction is reviewed considering the cost
of providing the service or a comparable charge made in the industry for each
service, the comptroller will adjust the charges and assess additional tax,
penalty, and interest on the taxable services.
(3)
Charges for services or expenses directly related to and
incurred while providing the taxable service are taxable and may not be separated
for the purpose of excluding these charges from the tax base. Examples would
be charges for meals, telephone calls, hotel rooms, or airplane tickets.
(f)
[
(g)
[
(1)
To the extent information service is used to support a
separate, identifiable segment of a customer's business (other than general
administration or operation of the business) the service is presumed to be
used at the location where that part of the business is conducted.
(2)
If that part of the business is conducted at locations
both within and outside the state, the service is not taxable to the extent
it is used outside Texas. A multistate customer may use any reasonable method
for allocation which is supported by business records.
(3)
A multistate customer purchasing information services for
the benefit of both in-state and out-of-state locations is responsible for
issuing to the information service provider an exemption certificate asserting
a multistate benefit, and for reporting and paying the tax on that portion
of the charge for information which will benefit the Texas location. An information
provider that accepts such a certificate in good faith is relieved of responsibility
for collecting and remitting tax on transactions to which the certificate
relates.
(4)
The customer's books must support the assignment of the
service to an identifiable segment of the business, the determination of the
location or locations of the use of the service, and the allocation of the
taxable charge to Texas.
(5)
To the extent the use of the service cannot be assigned
to an identifiable segment of a customer's business, the service is presumed
to be used to support the administration or operation of the customer's business
generally. The service is presumed to be used at the customer's principal
place of business. The principal place of business means the place from which
the trade or business is directed or managed.
(h)
[
(1)
For local sales tax purposes, city, county, transit authority,
and special purpose district sales taxes are due if an information provider
has only one place of business (the location where clients request service)
within the boundaries of a local taxing entity. Local sales tax must be collected
based on the tax rate at that location, except that no MTA or CTD sales tax
is due on services provided at a location outside the boundaries of the transit
area. In the case of multiple locations, if an order for service is placed
at one location but the service is provided at another location, the place
of business from which the service is provided will determine to which local
taxing entity the tax is allocated.
(2)
If a place of business is outside the boundaries of a local
taxing entity, the information provider will be required to collect local
use tax if the client is within the local taxing entity and the information
provider has representation in the local taxing entity as outlined in §3.286
of this title (relating to Seller's and Purchaser's Responsibilities). Even
if the information provider is not required to collect local use tax, the
client is still liable for the tax if the service is performed or a benefit
is derived from the service within the boundaries of a local taxing entity.
(A)
An in-state customer purchasing information services for
the benefit of locations in more than one local taxing entity is responsible
for issuing to the information provider an exemption certificate asserting
a multi-city benefit and for determining the extent of benefit for each entity.
The local tax for each entity must be reported, allocated, and paid by the
customer. An information provider that accepts in good faith an exemption
certificate claiming a multi-city benefit is relieved of responsibility for
collecting and remitting local tax on transactions to which the certificate
relates.
(B)
A multistate customer purchasing information services for
the benefit of both in-state and out-of-state locations is responsible for
issuing an exemption certificate and for reporting and paying local tax as
provided by subsection (f)(3) and (4) of this section.
(i)
[
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on June 6, 2000.
TRD-200003986
Martin Cherry
Deputy General Counsel for Tax Policy and Agency Affairs
Comptroller of Public Accounts
Earliest possible date of adoption: July 23, 2000
For further information, please call: (512) 463-3699
34 TAC §3.366
The Comptroller of Public Accounts proposes a new §3.366,
concerning Internet access services. The new section reflects the addition
to the Tax Code of an exemption for Internet access service. The relevant
statutory provisions are found in Tax Code, §§151.00303, 151.00394,
and 151.325, and in changes made to Tax Code, §151.0101(a) and §151.0103,
by Senate Bill 441, 76th Legislature, 1999, effective October 1, 1999.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the new rule will be in effect there will be no significant
revenue impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the new rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing new information regarding tax responsibilities.
The rule would have no significant fiscal impact on small businesses. There
is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This new section is proposed under the Tax Code, §111.002,
which provides the comptroller with the authority to prescribe, adopt, and
enforce rules relating to the administration and enforcement of the provisions
of the Tax Code, Title 2.
The new section implements the Tax Code, §§151.00303, 151.00394,
151.325, 151.0101(a), 151.0103.
§3.366.Internet Access Services.
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Internet - 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.
(2)
Internet access service - 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 or other taxable services,
unless these services are provided in conjunction with and are merely incidental
to the provision of Internet access service. For example: Basic Internet access
service includes the ability to access general information (an information
service) and/or the ability to send information or messages via e-mail (a
telecommunication service). These services are incidental to the provision
of Internet access services and, unless separately stated, are considered
part of the Internet access service. On the other hand, a person selling information
services using the Internet, such as a company selling stock market prices,
is not providing an Internet access service and must collect tax on the charge
for its information service.
(b)
Amount subject to tax. The sale, use, or other consumption
in this state of Internet access service is exempt from sales or use tax in
an amount not to exceed the first $25 of a monthly charge. This exemption
applies to the total sales price the service provider charges a purchaser
for Internet access, without regard to whether the service provider charges
one lump-sum amount or separately bills the purchaser for each user. For example:
Company A buys Internet access for 25 employees at several locations. The
first $25 of the total charge to Company A is exempt and not the first $25
of each user's apportioned cost. Because a "purchaser" is a single entity
and the $25 exemption is provided per purchaser, not user, account, or site,
separate billings for employees or for different locations will not reduce
the taxable amount. This exemption applies without regard to:
(1)
whether the Internet access service is bundled with another
service, including any other taxable service; or
(2)
the billing period used by the service provider. Example:
An Internet access service is provided for a set fee of $99 per year. The
fee will qualify in its entirety for exemption because the monthly charge
is less than $25. The exemption applies to services performed on or after
October 1, 1999. The exemption does not apply to services performed before
the effective date and billed or paid for after the effective date of the
exemption.
(c)
Hold permits. All providers of Internet access services
must obtain a Texas sales and use tax permit and collect tax on the total
amount subject to tax as provided in subsection (b) of this section, or accept
a properly completed resale, exemption, or direct payment permit exemption
certificate in lieu of collecting tax. See §3.285 of this title (relating
to Resale Certificate; Sales for Resale); §3.287 of this title (relating
to Exemption Certificates); and §3.288 of this title (relating to Direct
Payment Procedures and Qualifications).
(d)
Resale certificates.
(1)
Providers of Internet access services may issue resale
certificates in lieu of tax to suppliers of tangible personal property only
if care, custody, and control of the property is transferred to the customers.
For example, a service provider purchases diskettes to transfer software to
customers. The service provider may purchase the diskettes tax free by issuing
a resale certificate. However, promotional diskettes provided to potential
customers are not resold and are taxable.
(2)
An entity that markets Internet access services for others
and gives away, or sells for a nominal amount (less than 25%), computer-related
equipment as an inducement to sign an Internet service contract is considered
the consumer of the equipment and must pay tax on its acquisition cost of
the equipment. An entity that markets Internet access services for others
and also sells related equipment for 25% or more of acquisition cost is a
retailer of the equipment. The entity may buy the transferred equipment tax
free for resale and collect tax on its charge to its customers. For example,
Company A markets Internet access services provided by Company B. Company
A purchases computers for $400 that it offers to customers for free when a
customer signs a contract for Internet access service with Company B. Company
A is the consumer of the computer and owes tax when it purchases the computer.
If Company A sells the computer to its customer for $100 or more (25% or more
of cost), Company A may purchase the computer tax free for resale but must
collect tax from its customer on the sales price of the computer ($100). If
Company A sells the computer for less than $100 under the condition that the
customer will purchase Internet access service from Company B, the nominal
amount paid by the customer is not taxable and Company A must pay tax on the
original purchase price of the equipment.
(3)
A resale certificate may be issued for a service if the
buyer intends to transfer the service as an integral part of taxable services.
A service will be considered an integral part of a taxable service if the
service purchased is essential to the performance of the taxable service and
without which the taxable service could not be rendered. For example, a provider
of Internet access service may purchase tax free for resale telecommunication
services used to provide the Internet access services.
(e)
Service benefit location. If both the Internet access service
provider and the customer are located in Texas, Texas tax is due.
(f)
Service benefit location - multi-state customer.
(1)
To the extent Internet access service is provided to and
accessed by a multi-state customer with users both within and outside of Texas,
the service is presumed to be used at the location from which the Internet
is accessed. The service is not taxable to the extent it is used outside Texas.
A multi-state customer may use any reasonable method for allocation that is
supported by business records.
(2)
A multi-state customer purchasing Internet access services
for the benefit of both in-state and out-of-state locations is responsible
for issuing to the Internet access service provider an exemption certificate
asserting a multi-state benefit, and for reporting and paying the tax on that
portion of the Internet access charge that will benefit the Texas location.
An Internet access service provider that accepts such a certificate in good
faith is relieved of responsibility for collecting and remitting tax on transactions
to which the certificate relates.
(g)
Local taxes.
(1)
For local sales tax purposes, city, county, transit authority,
and/or special purpose district sales taxes are due if the Internet access
service provider has only one place of business (the location from which the
provider accepts orders for Internet service) within the boundaries of a local
taxing entity. Local sales tax must be collected based upon the tax rate at
that location, except that no transit authority sales tax is due on services
provided to a location outside the boundaries of the transit area. In the
case of multiple locations, if an order for Internet service is taken at one
location but the service is provided from another location from which customers
may order service, the place of business from which the service is provided
will determine to which local taxing entity the tax is allocated.
(2)
For the purposes of the local use tax, if a place of business
is outside the boundaries of a local taxing entity, the Internet access service
provider will be required to collect local use tax if the client is within
the local taxing entity and the service provider has representation in the
local taxing entity as outlined in §3.286 of this title (relating to
Seller's and Purchaser's Responsibilities). Even if the service provider is
not required to collect local use tax, the client is still liable for the
tax if the service is received or a benefit is derived from the service within
the boundaries of a local taxing entity.
(3)
An in-state customer purchasing Internet access services
for the benefit of locations in more than one local taxing entity is responsible
for issuing to the Internet access service provider an exemption certificate
claiming a multi-city benefit and for determining the extent of benefit for
each entity. The local use tax for each entity must be reported, allocated,
and paid by the customer. An Internet access service provider that accepts
in good faith an exemption certificate claiming a multi-city benefit is relieved
of responsibility for collecting and remitting local tax on transactions to
which the certificate relates.
(h)
Use tax. If a provider of an Internet access service is
not engaged in business in Texas or in a specific local taxing jurisdiction
and is not required to collect Texas tax, it is the Texas customer's responsibility
to report and pay the state and local use tax directly to this office.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on June 6, 2000.
TRD-200003987
Martin Cherry
Deputy General Counsel for Tax Policy and Agency Affairs
Comptroller of Public Accounts
Earliest possible date of adoption: July 23, 2000
For further information, please call: (512) 463-3699
34 TAC §3.579
The Comptroller of Public Accounts proposes a new §3.579,
concerning child care credits. This new section is the result of Tax Code,
new Subchapter N, §§171.701 - 171.707, and new Subchapter R, §§171.831
- 171.836. This new section is in accordance with Senate Bill 441 passed by
the 76th Legislature, 1999. The section provides franchise tax guidelines
for eligibility and calculation of two credits: day care and after school
care. These credits are for expenditures made in Texas on or after January
1, 2000.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect there will be no significant revenue
impact on the state or local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect the public benefit anticipated as a result of enforcing
the rule will be the clarification of Comptroller policy related to calculation
of the day care credit and the after-school care credit. This rule is adopted
under the Tax Code, Title 2, and does not require a statement of fiscal implications
for small businesses. There is no significant anticipated economic cost to
individuals who are required to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This new section is proposed under the Tax Code, §111.002,
which provides the comptroller with the authority to prescribe, adopt, and
enforce rules relating to the administration and enforcement of the provisions
of the Tax Code, Title 2.
The new section implements the Tax Code, §§171.701-171.707 and §§171.831-
171.836.
§3.579.Child Care Credits.
(a)
Effective date. A corporation may claim a day care credit
or an after school credit only for expenditures made in Texas on or after
January 1, 2000.
(b)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
"Day-care center" has the meaning assigned by Human Resources
Code, §42.002.
(2)
"Expenditure" means a direct contribution, donation, gift,
or payment, but does not include an indirect contribution, donation, gift,
or payment. Subsections (e) and (f) of this section set out qualifying expenditures.
For example, a payment to an organization directly operating a qualifying
program could be a qualifying expenditure, but a payment to a charitable organization
who distributes the funds to another organization that actually operates the
qualifying program will not be a qualifying expenditure.
(3)
"Family home" has the meaning assigned by Human Resources
Code, §42.002.
(4)
"Primarily" means more than 50%.
(5)
"School-age child care" means care provided before or after
school and during the summer and holidays primarily for children who are at
least five years of age but younger than 14 years of age. The program must
provide care during school holidays, when most businesses are open and most
parents are working, but need not provide care on universally-recognized holidays,
such as Thanksgiving, Christmas, and New Year's Day.
(c)
Information required. A corporation that claims the day
care credit under this section must submit all additional information required
by the Comptroller necessary to complete the report required by Tax Code, §171.707.
(d)
Limitations. A corporation may not convey, assign, or transfer
the day care credit or after school credit to another entity, unless all of
the assets of the corporation are conveyed, assigned, or transferred in the
same transaction.
(e)
Day care credit.
(1)
A corporation may claim a credit under this subsection
only for a qualifying expenditure relating to:
(A)
the establishment or operation of a day-care center primarily
to provide care for the children of employees of the corporation or for children
of the employees of the corporation and one or more other entities sharing
the costs of establishing and operating the center; or
(B)
the purchase of child-care services that are actually provided
to children of employees of the corporation at a:
(i)
day-care center; or
(ii)
family home that is registered or listed with the Department
of Protective and Regulatory Services under Human Resources Code, Chapter
42.
(2)
A qualifying expenditure means an expenditure for:
(A)
planning the day-care center;
(B)
preparing a site to be used for the day-care center;
(C)
constructing the day-care center;
(D)
renovating or remodeling a structure to be used for the
day-care center;
(E)
purchasing equipment necessary in the use of the day-care
center and installed for permanent use in or immediately adjacent to the day-care
center, including kitchen appliances and other food preparation equipment;
(F)
expanding the day-care center;
(G)
maintaining and operating the day-care center, including
paying direct administration and staff costs; or
(H)
purchasing all or part of child-care services that are
actually provided to children of employees of the corporation at a day-care
center or registered or listed family home.
(3)
The amount of credit is:
(A)
equal to the lesser of 50% of the corporation's qualifying
expenditures or $50,000; and
(B)
not to exceed 90% of the amount of tax due for the report
on which the credit is claimed.
(4)
If a corporation shares in the cost of establishing or
operating a day-care center, the corporation is entitled to a credit for the
qualifying expenditures made by that corporation, subject to the limitation
prescribed by subsection (d) of this section.
(5)
A corporation must apply for a credit under this subsection
on or with the franchise tax report for the period for which the credit is
claimed.
(6)
If the corporation is claiming a credit for a qualifying
expenditure for purchasing child-care services, the corporation must maintain
proof that the services were actually provided to children of employees of
the corporation at a day-care center or registered or listed family home.
(7)
The comptroller shall adopt a form for corporations to
use to apply for and claim the credit. A corporation must use this form to
apply for and claim the credit.
(8)
A corporation may claim a credit under this subsection
for qualifying expenditures made during an accounting period only against
the tax owed for the corresponding reporting period.
(f)
After school care credit.
(1)
A corporation may claim a credit under this subsection
only for a qualifying expenditure relating primarily to the operation of a
school-age child care program that is operated by:
(A)
a nonprofit organization licensed under Human Resources
Code, Chapter 42;
(B)
a nonprofit, accredited educational facility, including:
(i)
an organization whose standards of care are consistent
with those set out by a recognized national accreditation body for school-age
child care, or
(ii)
an organization who is a charter member of a national
organization that establishes school- age child care guidelines as a prerequisite
for national affiliation or membership;
(C)
another nonprofit entity under contract with the nonprofit,
accredited educational facility, if the Texas Education Agency or Southern
Association of Colleges and Schools has approved the curriculum content of
the program operated under the contract; or
(D)
a county or municipality, if the governing body of the
county or municipality annually adopts standards of care by order or ordinance
that include minimum child-to-staff ratios, staff qualifications, facility,
health, and safety standards, and mechanisms for monitoring and enforcing
the standards.
(2)
A qualifying expenditure means an expenditure for:
(A)
constructing, renovating, or remodeling a facility or structure
to be used by the program;
(B)
purchasing necessary equipment, supplies, or food to be
used in the program; or
(C)
operating the program, including administrative and staff
costs.
(3)
The amount of the credit is equal to 30% of a corporation's
qualifying expenditures.
(4)
A corporation may claim a credit under this subsection
for a qualifying expenditure during an accounting period only against the
tax owed for the corresponding reporting period.
(5)
A corporation may not claim a credit in an amount that
exceeds 50% of the amount of net franchise tax due, after applying any other
credits, for the reporting period.
(6)
A corporation must apply for a credit under this subsection
on or with the tax report for the period for which the credit is claimed.
(7)
The comptroller shall adopt a form for corporations to
use to apply for and claim the credit. A corporation must use this form to
apply for and claim a credit.
(8)
A corporation is not eligible for the credit if the corporation
cannot establish that the facilities, equipment, supplies, food, administrative
services, and staff services are primarily used for the program. Therefore,
a corporation must maintain proof, in the form of a written acknowledgement
provided by the recipient operating the qualifying program. The written acknowledgement
must set out the amount of the donation, contribution, gift, or payment and
must specify that the donation, contribution, gift, or payment will be used
for a qualifying expenditure, as set out in subsection (f)(2) of this section,
primarily for the program.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State, on June 9, 2000.
TRD-200004062
Martin Cherry
Deputy General Counsel for Tax Policy and Agency Affairs
Comptroller of Public Accounts
Earliest possible date of adoption: July 23, 2000
For further information, please call: (512) 463-4062
Chapter 41.
INSURANCE PROGRAMS
Subchapter B. LONG-TERM CARE, DISABILITY AND LIFE INSURANCE
(a)
]
Data processing services
-
[
Services. Data processing services means
] the processing
of information for the purpose of compiling and producing records of transactions,
maintaining information, and entering and retrieving information. It specifically
includes word processing, payroll and business accounting, and computerized
data and information storage or manipulation. The charge for data processing
services is taxable regardless of the ownership of the computer. Examples
of data processing services [
would
] include
entering
[
the entry of all
] inventory control data for a company,
maintaining
[
maintenance of
] records of employee work time,
filing payroll tax returns, preparing W-2 forms, and computing and preparing
payroll checks. Data processing does not 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, e.g., the use of a computer to provide
interpretive or enhancement geophysical services or the use of a computer
by a CPA firm, enrolled agent, or bookkeeping firm to produce a financial
report, prepare federal income tax, state franchise or sales tax returns,
or charges for temporary secretarial personnel who as part of their function
use word processing equipment.
Data processing services does not include
Internet access services or data processing services provided in conjunction
with and incidental to the provision of Internet access service when billed
as a single charge.
a
] Texas sales and use tax
permits
[
permit
] and collect tax on
charges
[
the total amount
charged
] for data processing services, or accept [
a
] properly
completed resale, exemption, or direct pay permit
certificates
[
certificate
] in lieu of collecting tax. See §3.285 of this
title (relating to Resale Certificate; Sales for Resale); §3.287 of this
title (relating to Exemption Certificates); §3.288 of this title (relating
to Direct Payment Procedures and Qualifications).
Effective October 1,
1999, 20% of the total amount charged for data processing services is exempted
from tax. The exemption applies to services performed on or after October
1, 1999. The exemption does not apply to services performed before the effective
date and billed or paid for after the effective date of the exemption.
manipulation of
] data provided by the customer
is data processing and is not included in the definition of information services.
(b)
] Taxable information services.
Information
that
[
which
] 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 is subject
to sales tax. [
Except as provided in subsection (d)(3) of this section,
the total charge for information services whether by subscription or on an
as-needed basis is taxable.
] Examples of
taxable
[
such
] information
services
include, but are not limited to, the
following:
(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.
(d)
Nontaxable information.
]
(1)
The sale of information which is gathered
or compiled on behalf of a particular client is not subject to tax if the
information is of a proprietary nature to that client and may not be sold
to others by the person who gathered or compiled the information. Any subsequent
sale of such information by the client for whom the information was gathered
or compiled is subject to tax. Examples include opinion polls and management
consultant reports.
]
(2)
Any sale of information primarily derived
from laboratory, medical, or exploratory testing or experimentation or any
similar method of direct scientific observation of physical phenomena is not
subject to tax. Examples of information the sale of which is exempt from tax
under this subsection include, but are not limited to, geophysical survey
information, polygraph test, and medical test results.
]
(3)
Information required to be furnished pursuant
to the Open Records Act is not subject to sales tax. See §3.341 of this
title (relating to Sales of Governmental Publications, Records, or Documents).
Fees paid when obtaining these documents may be excluded from the tax base
if separately stated when the documents are furnished to clients. Tax will
only be due on the amount over and above the cost of the documents.
]
(e)
] Resale certificates.
(f)
] Unrelated services.
(g)
] Service benefit location.
If both the information service provider and the customer are located in Texas,
Texas tax is due.
(h)
] Service benefit location -
multistate customer.
(i)
] Local taxes.
(j)
] Use tax. If an information
provider is not doing business in Texas or in specific local taxing jurisdictions
and is not required to collect Texas state or local tax, it is the Texas customer's
responsibility to report the state and local use tax directly to this office.
Subchapter V. FRANCHISE TAX
Part 3.
TEACHER RETIREMENT SYSTEM OF TEXAS