Overview of Texas Comptroller Guidance
The Texas Comptroller of Public Accounts has provided guidance on the sales and use taxability of payment card management programs. The taxpayer offers customers, such as food delivery services, the ability to manage and customize debit and prepaid cards used in their businesses.
Taxable “Data Processing” Services in Texas
In Texas, “data processing” services are taxable services. These include:
- Word processing
- Data entry
- Data retrieval
- Data search
- Information compilation
- Payroll and business accounting data production
- Other computerized data and information storage or manipulation
- Processing of information for the purpose of compiling and producing records of transactions
- Maintaining information
- Entering and retrieving information
Note: Processing of an electronic payment transaction is not considered data processing.
Ruling on Payment Card Management Programs
Here, the taxpayer’s services are nontaxable because it maintains sponsorship agreements with issuing banks and card networks to facilitate its program. The taxpayer:
- Does not have regulatory authority to issue payment cards
- Must maintain agreements with banks who issue the cards to the taxpayer’s customers
Because the taxpayer is sponsored by issuing banks to settle electronic transactions and authorize payment card transactions, the taxpayer’s program is considered a nontaxable payment processing service.
Reference:
Texas Private Letter Ruling No. 202204028L, issued 04/29/2022 (released June 2022).
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Frequently Asked Questions
What is considered “data processing” under Texas tax law?
Data processing in Texas includes services such as word processing, data entry, retrieval, compilation, and information storage or manipulation. These services are taxable unless explicitly exempted under specific guidelines.
Are payment card management programs taxable in Texas?
No, if structured correctly. When a company acts through sponsorship agreements with issuing banks and card networks, and doesn’t directly issue cards or hold regulatory authority, its services are classified as nontaxable payment processing rather than taxable data processing.
How does the Texas Comptroller distinguish between payment processing and data processing?
The Comptroller distinguishes them based on function. Payment processing involves the authorization and settlement of transactions through banks or networks and is nontaxable. In contrast, data processing manipulates or stores data and is taxable.
Why was the taxpayer’s program ruled as nontaxable?
The taxpayer’s program was ruled nontaxable because it operates under agreements with issuing banks, facilitating but not issuing the cards. This role is considered part of electronic payment processing, not data handling.
Does processing electronic payment transactions count as taxable data processing?
No, the Texas Comptroller explicitly states that processing electronic payment transactions does not fall under taxable data processing, as it involves financial transaction facilitation, not data manipulation.