1 Reply Latest reply on Oct 3, 2013 11:47 AM by DrewTenenholz

    Sales Tax on Database Consulting


      I am an independent developer in Texas and had to wrangle with the Texas Comptroler over the States' Sales and Use Tax. Things are pretty obvious regarding resale (e.g., FileMaker software). But database consulting is a whole other matter. It used to be back in the 90's and before, that in Texas, Services were not taxed. So you have a lawyer provider services or a tax accountant, those "services" were not taxable. However, when I talk with the Comptroller, they want to put database consulting in a category called "Data Processing Services" (Title 34, Part 1, Chapter 3, Subchapter O, Rule §3.330) because it doesn't neatly fit anywhere else in their definitions and they won't categorize it as general consulting. This rule came out of the State trying to figure out in the 90's how to deal with Internet Service Providers and they determined they needed to tax users and eventually this came to include all Data Processing Services.


      A similar type IT business is web development tied to a database. Here in Texas, web developers have been nailed by the Comptroller for not collecting taxes for creating web pages. You can read more about Rule 3.330 and Web Developers at http://keeptexas.org/blog/tom/understanding-texas-sales-tax-web-related-professional-services


      One example the Comptroller gives is that creating a web page and providing server space is taxable. But consulting services are not. So is creating a FileMaker layout taxable? The Comptroller has told me yes several times even though quite a few developers tell me I don't have to. For now, I just am charging sales tax on development costs for projects in Texas. Of course that brings up a whole other topic of if I am developing here in Texas connectly remotely to a machine in another State, which State do I owe the tax too.


      Personally, I think this is just government creep slowly working its way into taxing things it traditionally said it was not going to tax via wordsmithing.


      Oh the fun of being a small FileMaker development company. But I would be interested on how other States are handling database consulting or other experiences with the Texas Comptroller.

        • 1. Re: Sales Tax on Database Consulting

          Taylor --


          We just went through a similar process here in Massachusetts.  The recent transportation funding bill included a tax on 'Computer and Software Services'.


          After the 'big guns' like Google, Oracle, and the Mass. Software Council did a lot of complaining, the tax was repealed within a month of going into effect.


          I can't tell you how relieved I am at this.  The law was poorly worded (as your seems to be), and made it hard to understand how to account for the work we do.  As in your case, consulting is not taxable, but 'modifications to prewritten software' became taxable.  I couldn't make sense of it myself.  It seemed like you could 'advise' your client to click the button to update from FM12.0v1 to v12.04 and not charge tax, but clicking the button yourself should have been taxed....  As for creating a layout or script--no clue.


          They were also trying to hit web developers, and again, the 'modifications to prewritten software' makes no sense.  Very few web programmers are modifying Apache, but then, they said that creating a web page or linked set of web pages into a new custom system was supposed to count....  Even customizing software for a tax accountant was a taxable service.  (Does that mean turning automatic spell-checking on is a 'modification to prewritten software'!?)


          The one thing that seemed pretty clear was that work done by people working in Massachusetts (whether they were working on a machine outside of the state or not) must charge tax.  There were also a bunch of other complicated caveats when the software was used both in-state and out-of-state (tax a portion!).


          Basically, this all went away with the repeal.  Sorry to hear that you have to live with it....


          -- Drew Tenenholz