Texas ~ Sales and Use Tax: Cloud-Based Software Texting Service Taxable

A taxpayer’s cloud-based text and messaging service provided to subscribing businesses, which allows the subscribers’ customers to text questions, requests, orders, or other messages to the subscriber from any type of mobile device, is a taxable data processing service subject to Texas sales and use tax.

Through a web-based dashboard application, the taxpayer receives and processes data for subscribers, translates incoming messages into an accessible format, stores customers’ messages for subsequent retrieval, and creates analytic reports for the subscriber’s use. Such services constitute taxable data processing services and are excluded from the definition of telecommunications services. Texas imposes sales tax on 80% of data processing service charges and exempts 20% of such charges.

The taxpayer’s dashboard service constitutes software as a service (SaaS), which is treated as a taxable data processing service. SaaS is commonly defined as a software application delivery model where a software vendor develops a web-native software application and hosts and operates (either independently or through a third-party) the application for use by its customers over the Internet. Customers do not pay for owning the software itself but rather for using it.

Finally, the taxpayer’s charges to businesses for renting a specialized printer to print out customer’s messages (printer usage fees) are subject to Texas sales and use tax as a rental of tangible personal property.

Letter No. 201705045L (PLR #151250584), Texas Comptroller of Public Accounts, May 30, 2017, ¶404-273

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