SECTION 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 data provided by the customer is data processing and is not included in the definition of information services.

(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) Taxable information services. Information 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 is subject to sales tax. Examples of taxable information services include, but are not limited to, the following:

(A) newsletters;

(B) scouting reports and surveys, including those used in sports and the oil and gas and related industries;

(C) mailing lists, and bad check lists (only that percentage which represents names of persons located in Texas is taxable);

(D) real estate listings;

(E) financial, investment, stock market, or bond rating, or financial reports, other than charges to a person by a financial institution for account balance information;

(F) news clipping services and wire services; and

(G) abstracts of title and other information provided by title plants.

(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) Resale certificates.

(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) Unrelated services.

(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) Service benefit location. If both the information service provider and the customer are located in Texas, Texas tax is due.

(g) Service benefit location - multistate customer.

(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) Local taxes.

(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) 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.

Source Note: The provisions of this §3.342 adopted to be effective March 25, 1988, 13 TexReg 1192; amended to be effective November 13, 1989, 14 TexReg 5787; amended to be effective March 23, 1995, 20 TexReg 1749; amended to be effective August 24, 2000, 25 TexReg 8049