The Texas Comptroller treats cloud-based text and messaging services as taxable data processing, subjecting 80% of the charge to the Texas sales tax. A California-based company requested Comptroller guidance and explained that it operates a subscription service for businesses that allows a business’s customers to text questions, orders, and other messages to the subscriber business from any mobile device. The company then processes the message content into a useable format that can be displayed on the subscriber business’s dashboard and stores the message content for later retrieval. The company also analyzes the message content and provides the analysis in regular reports to the subscriber business—for example, reports can include the number of requests received per day, their categories, and response times. Instead of downloading or installing the California company’s software, subscriber businesses access and use it over the internet.
The Comptroller’s letter ruling explains that these services are considered “software as a service,” or “SaaS,” which is typically defined as a business model where a software vendor develops a web-native software application and hosts and operates it (either independently or through a third-party) for use by its customers over the internet. Customers pay to use the software rather than to own it. Per the Comptroller, SaaS constitute taxable data processing services for which 80% of the charge is subject to Texas sales and use tax. The service provider company also offers its subscriber businesses the option to print their customers’ messages using a specialized printer for an additional fee. Per the same Comptroller letter ruling, these fees are subject to sales and use tax as a rental of tangible personal property.