Analysis:
Document is just the Comptroller adding administrative weight to the still in contest data processing issue.
While we can see why the Comptroller would come to it's conclusions, a more detailed review with a more substantively accurate fact pattern may lead to a different determination.
If you are a business person who does these services and is not charging tax, now would be a great time to reach out to a tax professional and possible discuss if a VDA makes sense in your situation.
March 28, 2025
**************
**************
**************
RE: Private Letter Ruling No. 20230922095259
Dear **************:
We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1]1 We are responding to your request dated Aug. 29, 2023, which includes additional information received on Nov. 22, 2023, Feb. 14, 2024, July 23, 2024, and Dec. 19, 2024. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.
You requested guidance on the taxability of an annual subscription for services that includes website development, order management, and social media marketing for restaurants and bars.
Facts Presented
************** (Taxpayer) provides bars and restaurants (Clients) access to its marketing software applications on a subscription basis. Through these applications, Taxpayer provides bundles of services that include the creation of a customized website, automated order and reservation management, and scheduled posts to Client’s social media platforms.
Taxpayer offers three types of bundled packages: Premium, Premium Plus, and Enterprise.
With the Premium bundle, Taxpayer develops a custom Client website, manages private party and catering, manages online ordering, manages reservations, provides quick response (QR) code contactless menus, posts on Client’s Facebook and X social media platforms, and provides electronic gift (e-gift) card integration. Taxpayer’s Premium bundle also includes two photoshoots per year for pictures that Taxpayer will use in the development of Client’s website and social media posts. With the Premium Plus bundle, Taxpayer provides all the Premium bundle services, but also provides auto-generated email blasts (i.e., email campaigns), Instagram posts, and an additional photo package (either four additional photoshoots or two photoshoots and one video shoot).
Taxpayer provides all the Premium Plus bundle services along with additional event planning services and 5,000 text messages a month as marketing campaigns to be sent to customers in its Enterprise Bundle.
Taxpayer does not separately state each service in its bundled charge. Taxpayer does provide some services separately from the subscription bundles. For example, if Client selects the Premium bundle, the Client can add on the marketing text messages and/or Instagram posting, which are not included in the Premium bundle.
Taxpayer provided the following information for the services included in its bundles:
Custom Website Creation and Maintenance
Taxpayer creates a custom-made website specifically designed and developed for a Client. Taxpayer builds each website using a format selected by the Client and photos and videos produced by Taxpayer for each Client. Taxpayer stores the website on Taxpayer’s system where Clients can review and suggest edits to the website and view metrics of website activity and subscribed marketing efforts, gathered and performed by Taxpayer.
Taxpayer provides on-going support for the website which may include updates for seasons, holidays, and sporting events. Taxpayer may refresh the websites from time-to- time, using new photoshoots and video shoots on an ongoing basis. Taxpayer also provides a specified amount of time performing customer requested website modifications.
The website remains the property of Taxpayer. Client’s right to access the website on Taxpayer’s system ceases when the subscription ends or terminates. Client may purchase the website or application when the contract ends.
Private Party Management/Catering Management
Taxpayer’s service provides access to a software application that allows restaurants the ability to manage private party and catering reservations. Taxpayer customizes private party and catering management including specific layouts and images of spaces available. Taxpayer takes images of each space or area and of each dish available for catering.
Taxpayer also sets up specific menus for each Client that restaurant customers can view and optionally order from for their catering needs.
Online Ordering and Reservation Management
Taxpayer’s service manages online ordering and reservations for its Clients. Taxpayer takes photos of a Client’s menu items and makes them available on the Client’s website. Client’s customers can then place online orders for goods and services through the website.
Taxpayer’s service also allows Clients to accept and manage online restaurant reservations. Taxpayer customizes the capacity, number of tables, and hours of operation for each Client, and allows the Client to receive and track reservations made through its website.
E-Gift Card Integration
Taxpayer also provides e-gift card integration which allows gift cards to be purchased and delivered electronically.
QR Codes
Taxpayer develops QR codes to link to Client websites using Client logos. QR codes are a type of barcode that is easily readable using mobile devices. Clients’ customers scan the codes using a smartphone to access digital menus.
Social Media Posts
Taxpayer designs posts for each Client that may include text, photos, and videos. Taxpayer then updates Client’s social media platforms with the posts it has created.
Email Blasts and Text Messages
Taxpayer develops and sends marketing emails and texts to Clients’ customers. Text messages are included in the Enterprise bundle or may be purchased as an add-on to the Premium and Premium Plus bundles.
Event Planner
Taxpayer provides access to a software plugin that works in conjunction with the private party/catering management service. The service manages private party/catering proposals, payments, and auto-response templates. This can include proposals, menus, or contracts that Clients send to customers who inquire about parties or catering.
Taxpayer includes Event Planner as part of its Enterprise Bundle or it can be purchased separately as an add-on to the Premium and Premium Plus bundles.
Question, Ruling and Analysis
Our restatement of your question is shown below followed by our response and analysis.
Question: Are Taxpayer’s charges for its Premium, Premium Plus, and Enterprise bundled services subject to Texas sales and use tax?
Ruling: Yes, Taxpayer’s charges for its Premium, Premium Plus, and Enterprise bundled services are subject to Texas sales and use tax as data processing services.
Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term taxable item includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Section 151.0101 (Taxable Services) lists services that are taxable in Texas and includes data processing services. Section 151.0101(a)(12).
Section 151.0035(a)(1) (Data Processing Service) defines data processing service to include “data entry, data retrieval, data search, information compilation, … and other computerized data and information storage or manipulation.” See also Rule 3.330(a)(1) (Data Processing Services).
Rule 3.330(b)(12) states website creation, repair, and maintenance are taxable data processing services when they involve the storage, manipulation, compilation, and entry of data. See also Comptroller’s Decision Nos. 115,774 (2021) and 44,736 (2005) and STAR Accession No. 202010013L (Oct. 22, 2020).
Rule 3.321(a)(5)(H) (Advertising Agencies) defines nontangible services to include services such as writing copy. These services do not fall under the list of taxable services provided by Section 151.0101 unless they are related to the sale of a taxable item. Charges for nontangible services are not subject to sales and use tax. Rule 3.321(e)(1).
Each of Taxpayer’s bundled services include taxable data processing and nontaxable services provided for a single charge. The lump-sum charge for each bundle is taxable.
The Premium bundle includes development of a custom Client website, private party and catering management, online ordering management, reservation management, QR code contactless menus, social media posts, and e-gift card integration. The bundle also includes two photoshoots per year for pictures that will be used in the development of Client’s website and social media posts.
Taxpayer creates a website based on a format chosen by Client and photographs taken during Client photoshoots. The website is stored on Taxpayer’s system. Taxpayer also makes customer requested modifications to the website during the subscription period.
These activities involve the manipulation and storage of data for Clients and fall under the definition of data processing in Section 151.0035 and Rule 3.330(a)(1). Website creation and maintenance is also identified as a taxable data processing service in Rule 3.330(b)(12). See also Comptroller’s Decision Nos. 115,774 (2021) and 44,736 (2005). Therefore, Taxpayer’s website creation is a taxable data processing service.
Similarly, Taxpayer’s private party and catering management, online ordering management, reservation management, E-gift card integration, QR code contactless menus are also taxable data processing services. For these services, Taxpayer stores Clients’ menu information and photos. Taxpayer compiles and stores information related to Clients’ private parties, catering, online orders, reservations, and gift card orders. These activities meet the definition of data processing under Section 151.0035 and Rule 3.330(a)(1) and are therefore, taxable data processing.
Taxpayer’s development of social media posts, email blasts, and text message campaigns do not fall under the services listed as taxable services found in Section 151.0101. Creating social media posts, distributing email blasts, and text message campaigns are nontangible services. See Rule 3.321(a)(5)(H) and (e)(1). These services are not taxable when provided on a stand-alone basis.
Rule 3.330(a)(1)(C)(i) provides that if a data processing service is sold for a single charge with another service that does not have a separate value, and the other service is ancillary to the data processing service, the entire charge will be taxable as a data processing service. In determining whether the data processing service and the other service have separate values, the comptroller will consider whether the services are distinct and identifiable and whether each service is of a type that is commonly provided on a stand-alone basis or commonly provided as an additional service for a greater single charge. Rule 3.330(a)(1)(C)(iii).
Taxpayer’s Premium bundle includes both taxable and nontaxable items for a single charge. Website creation and maintenance, private party and catering management, online ordering management, reservation management, E-gift card integration, and QR code contactless menus are taxable data processing services. However, creation of Facebook and X posts is nontaxable.
The nontaxable services are not provided on a stand-alone basis and do not have a separate value as described by Rule 3.330(a)(1)(C)(iii). Therefore, Taxpayer’s charge for the Premium bundle is taxable as a data processing service as provided in Rule 3.330(a)(1)(C)(i).
The Premium Plus bundle includes the same taxable and nontaxable services as the Premium bundle. It also includes nontaxable email blasts and Instagram posts. Taxpayer’s email blasts are not provided on a stand-alone basis and do not have a separate value as described by Rule 3.330(a)(1)(C)(iii). However, Instagram posts are provided on a stand- alone basis and have a separate value. When data processing services are sold for a single charge with another service that has a separate value, the separate services are treated as nontaxable related services. Rule 3.330(a)(1)(C)(ii).
Where nontaxable related services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5 percent of the total charge, the total charge is presumed to be taxable. Rule 3.330(e)(2). The Premium Plus bundle provides website creation and maintenance and various order and reservation management functions, which represent more than 5 percent of the charge for the bundle. Therefore, Taxpayer’s Premium Plus bundle is presumed to be taxable as a data processing service.
The Enterprise bundle includes Event Planner which manages private party and catering menus, proposals, contracts, and payments. This service is a taxable data processing service.
Similar to Premium Plus, the Enterprise bundle includes the taxable data processing services included in the other bundles and additional nontaxable social media posts and text message campaigns. The nontaxable text message campaigns are provided on a stand-alone basis and have a separate value. However, the single charge is presumed to be taxable as a data processing service under Rule 3.330(e)(2) in the same manner as the Premium Plus bundle.
Section 151.351 (Information Services and Data Processing Services) provides a 20 percent exemption for data processing services. Taxpayer is responsible for collecting and remitting sales and use tax on 80 percent of the fee charged for its Premium, Premium Plus, and Enterprise bundles.
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 private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20230922095259.
Sincerely,
Tax Policy Division – Indirect Taxes
Texas Comptroller of Public Accounts
ENDNOTE
1 Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.
ACCESSION NUMBER: 202503024L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 2025-03-28
TAX TYPE: SALES
