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Texas Comptroller of Public Accounts STAR System
ACCESSION NUMBER: 202301018L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 2023-01-03
TAX TYPE: SALES
202301018L
January 3, 2023
**************
**************
**************
RE: Private Letter Ruling No. 20220201161745
Dear **************:
We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. We are responding to your request dated January 31, 2022 and supplemental submissions dated July 6, 2022 and conference call held on June 20, 2022 to discuss ************** services. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights. You requested guidance on whether ************** (Taxpayer) provides taxable services.
Facts Presented
Taxpayer sells and provides audiovisual and videoconferencing equipment and services. Taxpayer’s services include a Cisco Hybrid environment, which includes on-premises UCM and Webex branded suite of products; monitoring, reporting and analytics of infrastructure, software version control and testing; user and device management to operate programs; and infrastructure management. Included within these services are telecommunications services such as Voice over Internet Protocol (VoIP) and other electronic transmissions. These services are referred to as “Remote Services” and are billed for a lump-sum charge.
Taxpayer also provides on-site support and maintenance services referred to as “On-Site Services” on customer’s software and hardware infrastructure. On-site personnel support the customer’s use of its communication infrastructure related to connectivity for, among other things, videoconferencing. Taxpayer bills its customers a lump-sum charge for the On-Site Services. All Company personnel providing On-Site Services to the Customer perform such services at the Customer’s headquarters located in Texas.
Equipment and computer programs used by Taxpayer's customers for the telecommunication, collaboration activities, and audiovisual functions are supported by Taxpayer’s Remote and On-Site services. Taxpayer asserts they have sold all or some of the equipment and software that is used by its customer for the Taxpayer’s Remote and On-Site services related to the telecommunication, collaboration activities and audiovisual functions.
In addition, Taxpayer on occasion provides a separate statement of work for the provision of specific tasks related to the customer’s telephony communication infrastructure such as migration services from on-premises physical phones to cloud-based software for its customers' call center communication technologies. These services are called “Add-On Services” and are billed as a lump-sum charge.
For all Remote Services, On-Site Services, and Add-On Services, Taxpayer bills its customers a monthly lump-sum amount (i.e., there are not separated charges for equipment, software or the services provided by Taxpayer.) Because the billings to its customers are for lump-sum amounts, Taxpayer asserts it is not possible to determine what equipment, software, and software maintenance its customer purchased from Taxpayer and what equipment, software, and software maintenance the customer purchased from other vendors.
Questions, Responses, and Analysis
Our restatement of your questions is shown below, followed by our responses and analyses.
Question One: Are Taxpayer’s Remote Services taxable?
Response One: Taxpayer's Remote Services, billed as a monthly lump-sum charge, are taxable. Taxpayer’s lump-sum charge may include telecommunications services under Section 151.0103 (Telecommunications Services), sales of tangible personal property under Section 151.009 (“Tangible Personal Property”), and repair, maintenance, creation, and restoration of tangible personal property under Section 151.0101(a)(5) (“Taxable Services”).
Analysis One:
Texas imposes a sales tax on each sale of a taxable item in the state. Section 151.051 (Sales Tax Imposed). The term “taxable item” means tangible personal property and taxable services. Section 151.010 (Taxable Item). Only specifically enumerated services are taxable in Texas, including telecommunications services. Section 151.0101(a)(6) (“Taxable Services”).
A telecommunications service is “the electronic or electrical transmission, conveyance, routing, or reception of sounds, signals, data, or information utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or that may be devised, including but not limited to long-distance telephone services.” Section 151.0103. This includes intrastate long-distance telecommunications services, and interstate long-distance telecommunications services that are both originated from, and billed to, a telephone number or billing or service address within Texas. The service also includes VoIP which are telephone calls made through a data network. Rule 3.344 (a)(16) (Telecommunications Services).
Taxpayer’s “Remote Services” meet the definition of telecommunications services in the statute and rule in that telecommunications services includes electronic data transmissions and VoIP.
In addition, equipment leased, rented, or sold by Taxpayer is taxed as part of the sale of telecommunications service if the equipment is not separately invoiced. See Rule 3.344(b)(9). However, if the equipment is invoiced separately, the sale of equipment is subject to sales or use tax as the sale of tangible personal property and is not taxed as part of the telecommunications service. See id.
It is unclear if Taxpayer provides software with its telecommunications services. Software is taxable as tangible personal property. Repair, maintenance, creation, and restoration of software is also taxable when performed by the person who sold or provided the software. Section 151.0101(a)(5)(D).
Question Two: Are Taxpayer’s On-Site Services taxable?
Response Two: Taxpayer’s lump-sum charge for On-Site Services is taxable. Taxpayer’s service can include repair, remodeling, maintenance, or restoration of a computer program and hardware under Section 151.0101(a)(5).
Analysis Two:
A computer program and hardware are considered tangible personal property. Section 151.009. Taxable services include repair, remodel, maintenance, and restoration of tangible personal property except the repair, maintenance, creation, and restoration of a computer program, including its development and modification, not sold by the person performing the repair, maintenance, creation, or restoration service. Taxpayer is providing taxable repair, remodel, maintenance, and restoration of tangible personal property, not contract programming services. See Section 151.0101(a)(5)(D) and Rule 3.308 (a)(2) and (c)(2) (Computers—Hardware, Computer Programs, Services, and Sales).
Taxable computer program repair, maintenance, or restoration includes error correction, technical fixes, and technical support, whether provided in person, virtually, or over the phone. Taxpayer must collect sales tax on all on-site support and maintenance services provided, unless charges for software repairs, restoration or updates are made on software Taxpayer did not sell and are separately stated on the invoice or billing. Rule 3.308(c)(2).
Sales tax is due on all charges for labor or services to install, remodel, repair, maintain, or restore computer hardware located in Texas, regardless of who sold the hardware. Rule 3.308(b)(3)-(4).
If Taxpayer’s lump-sum charge includes both taxable and nontaxable services, the entire lump sum charge is taxable. See Comptroller Decision No. 103,588 (2012) (“When an invoice includes charges for both taxable and nontaxable items with no basis for a breakout the entire charge is taxable.”).
Question Three: Are Taxpayer’s Add-On Services taxable?
Response Three: The lump-sum charge for Add-On Services to implement, configure, and manage a communication infrastructure is taxable under Section 151.0101 (a)(5).
Analysis Three:
Taxpayer is not able to confirm if they do or do not provide the computer program involved in the Add-On service to implement, configure, and manage a communication infrastructure. As a result, the service is taxable as the repair, remodeling, maintenance, and restoration of tangible personal property. Section 151.0101 (a)(5).
When this service is provided by the seller of the computer program, the charge is taxable. Section 151.0101(a)(5)(D) and Rule 3.308 (c)(2). The same service provided by a seller who did not provide the computer program is not taxable. Id.
Records must support any claim to an exclusion of sales tax such as proof Taxpayer did not provide the computer program being configured. Rule 3.281(b) (Records Required; Information Required). If records cannot substantiate and exclusion claim, the entire charge is taxable. Id.
Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.
If you have questions about this general information letter, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference PLR 20220201161745.
Sincerely,
Tax Policy Division – Indirect Taxes
Texas Comptroller of Public Accounts
ACCESSION NUMBER: 202301018L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 2023-01-03
TAX TYPE: SALES