In two reletter rulings, the Texas Comptroller’s office evaluated the sales and use taxability of certain unique web-based services. In Tex. Policy Letter Ruling 201207531L (July 31, 2012), the Comptroller’s office ruled that Internet marketplace listing fees were not subject to Texas sales and use tax; however, the provision of webstore development services were taxable data processing services.

The taxpayer owned and operated an Internet marketplace website that provided third-party sellers the ability to list and sell their inventory on the taxpayer’s website for a listing fee. The listing fee is paid for the taxpayer’s service of “selling” the item—taxpayer collects the sales price, shipping costs, and sales tax from the buyer and remits the collected amount less the listing fee to the seller. The listing fee could be either charged on a per-item basis or on a percentage-based referral fee when the item is sold. The Comptroller’s office explained that the listing fees received from third-party sellers were not subject to sales tax because the fees were analogous to a charge for placing a classified advertisement on a web page, which is not taxable.

However, the taxpayer also offered an “Internet Store Service” that allowed sellers to build and operate customer-facing websites with the seller’s brand and their own Internet address that is maintained on the taxpayer’s servers. As part of the service, the taxpayer provides the electronic infrastructure and tools that allow the seller to build and maintain an online business, including the design and look of the seller’s website, as well as descriptions and pictures of the goods offered by the seller.

The Comptroller’s office held that these services were taxable data processing services under Tex. Admin. Code § 3.330, which includes the creation and hosting of a website. However, the Comptroller’s office further explained that pursuant to Tex. Admin. Code § 3.330(b), 20% of the total amount charged for data processing services is exempt from tax. Finally, the Comptroller’s office noted that if the listing fee and Internet Store Services are bundled for a lump sum price that is not separately stated, tax will be presumed to be due on the total amount charged to the customer for the services, less the 20% exemption for data processing.

In the second ruling issued on the same day, the Comptroller’s office concluded that an annual subscription fee to join a customer loyalty program was taxable because it contained taxable and non-taxable components for one bundled charge. In Tex. Policy Letter Ruling 201207532L (July 31, 2012), the taxpayer offered a subscription membership that entitled customers to view an unlimited number of instant videos, borrow designated electronic books from a library, and receive free or discounted shipping on eligible purchases.

In finding that the entire membership fee was subject to use tax, the Comptroller’s office reasoned that the subscription membership was a bundled transaction consisting of two taxable items (the instant streamed videos and electronic books loaned to customers) and one nontaxable item (the prepaid charge for shipping). The Comptroller’s office determined that providing instant videos fell under the definition of cable television service found in Tex. Tax Code § 151.0033 and is therefore taxable. Borrowing electronic books is a taxable information service under Tex. Tax Code § 151.0038(a)(2). While the prepaid shipping fee is not taxable if separately stated, when bundled with taxable items, it is also subject to Texas sales and use tax. Furthermore, the Comptroller’s office concluded that the subscription membership should be sourced to Texas if the customer is located in Texas.