Article
Prepare for sales tax changes to data processing rule in Texas
Nov. 4, 2024 · Authored by John LaBorde, Adam Cline, Kristen Scherer
Businesses with Texas customers that operate as an online marketplace provider may be impacted by the proposed changes to Rule 3.330 related to data processing.
Stay ahead of potential tax liabilities by understanding the proposed changes to Rule 3.330 for online marketplace providers in Texas and review your services against the new definition of data processing to support compliance and mitigate risks as the landscape evolves.
Increased responsibility and tax liability for marketplace providers
The comptroller issued a private letter ruling, noting that a taxpayer’s sale of membership-based consulting services that included both nontaxable services and data processing services were taxable at the full membership amount, but for the 20% exemption.
The comptroller has taken a similar position in audits, which has led to a proposal of amending Rule 3.330 related to data processing.
Reason for change
The proposed changes are intended to help online marketplaces navigate their responsibilities of the tax statutes, as well as the taxability of fees charged by online marketplaces to marketplace sellers.
The comptroller aims to accomplish this through redefining data processing in general, including or excluding specific services, and addressing ancillary services. The amended rule seeks to address both transactions between a marketplace seller and an end user as well as a marketplace seller and a marketplace provider.
Proposed changes
Under the preexisting rule, data processing is defined as, “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information”. The changes to the rule would include modifications to the general definition to define data processing as “the computerized entry, retrieval, search, compilation, manipulation, or storage of data or information.”
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