Sales and Use Tax Issues in Texas

Tax Professionals Resource
September 21, 2012 — 1,041 views  
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Texas is the home to several high technology companies like Compaq and
Dell and the state is on the cutting edge of extending its use and sales tax
definition for tangible personal property. Ever bold and even brash in its
search for tax revenue, the State of Texas has cast a wider net to include the
technology service providers and software companies doing business in the
state. Previously, tangible personal property was defined as the physical items
purchased to include in one’s business processes. The meaning of tangible
personal property has been broadened by the State of Texas to include high
technology services like storing data on a server physically in the state as
well as software delivered electronically to a company in the state. It does
not matter whether the business has a physical presence in the state, such as
an office building or warehouse; their presence in the State of Texas is now
recognized as an electronic storefront where goods can be downloaded from an
out-of-state seller into a computer or server in the state. Unfortunately,
these rulings by the State Comptroller caused more, not less, confusion. 

As an example, a business buys and electronically uses concurrent,
not-to-exceed licenses around the world. How many of those licenses are taxable
in Texas? If several licenses are used in the state, then the buyer more than
likely has established NEXUS, which means to establish a continuous business
presence in the state. Therefore, the business has the responsibility to remit
use tax to the state. Likewise, for software delivered via the internet to a
computer in Texas or for any program stored on a server physically located in
the state, the State of Texas has ruled that the seller has established NEXUS and
has the responsibility to remit sales tax to the state. Software that resides
outside Texas on a server but is accessed remotely by someone in the state is
also considered taxable by the state if NEXUS is established.

These rulings invariably have led to more decisions and rulings in an attempt
to clarify what is taxable and what is not taxable. Software maintenance is
considered taxable as is telephone support services but training to use the
software is considered not taxable. Large companies like Verizon as well as
smaller companies have asked for clearer guidelines. However, taxpayers who
protested their tax liability to the State of Texas have not received favorable
rulings.

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