Among the multitude of “taxable services” listed in the Texas Tax Code are “information services.” [1] Although the Texas Tax Code’s definition of information services is somewhat sparse, the Comptroller has expanded on this definition in Comptroller Rule 3.342:

“Furnishing general or specialized news or other current information, including financial information, by printed, mimeographed, electronic, or electrical transmission, or by utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or which may be devised, and electronic data retrieval or research.  The term information services do not include Internet access service or information services that are provided in conjunction with and merely incidental to the provision of Internet access service when provided for a single charge.” [2]

Therefore, at a very general level, the term “information services” includes the provision of news or other information by any means available.  However, not all information services are created equal – the Comptroller’s rule specifically distinguishes between taxable and nontaxable information services.

Taxable Information Services

A taxable information service includes “information that is gathered, maintained, or compiled and made available by the provider of the information service to the public or to a specific segment of industry for consideration.” [3] The Comptroller’s rule provides the following (non-exclusive) list of examples:

• Newsletters;
• Scouting reports and surveys;
• Mailing lists and bad check lists;
• Real estate listings;
• Financial, investment, stock market, or bond rating, or financial reports, other than charges to a person by a financial institution for account balance information;
• News clipping services and wire services; and
• Abstracts of title and other information provided by title plants.

Nontaxable Information Services

Comptroller Rule 3.342(a)(5) lays out three types of nontaxable information services [4]:

1. The sale of information that is gathered or compiled on behalf of a particular client, if the information is of a proprietary nature to that client and may not be sold to others by the person who gathered or compiled the information;
2. Any sale of information primarily derived from laboratory, medical, or exploratory testing or experimentation or any similar method of direct scientific observation of physical phenomena (e., scientific research reports); and
3. Information required to be furnished pursuant to the Open Records Act.

The most notable difference between taxable and nontaxable information services is that the Comptroller appears to treat the sale of generalized information as taxable, but the sale of client-specific (and proprietary) information as nontaxable.  In fact, the Comptroller’s rule specifies that even the sale of proprietary information will be treated as taxable if subsequently sold by the client for whom the information was originally gathered or compiled. [5]

Combined Information and Unrelated Services

Frequently, providers of information services may also engage in the sale of other “unrelated” services, but include these in a single charge with a taxable information service.  For example, a title plant providing abstracts of title may also include filing charges, escrow charges, or charges for proprietary information in one single charge.  The Comptroller treats these using a “5% rule.”  Specifically, if the taxable portion of the single charge (i.e., the information services portion) represents more than 5% of the total, the entire amount is presumed taxable. [6] This presumption can be overcome at the time the transaction occurs by separately stating the charges, or at a later time through documentary evidence showing the percentage of the charge that relates to the nontaxable unrelated services. [7] This presumption, however, may create issues for taxpayers who believe their unrelated services will not be taxed and who do not keep contemporaneous documentation for each specific charge.

[1] Tex. Tax Code §§ 151.051(a), 151.010, 151.0101(a)(10).

[2] 34 Tex. Admin. Code § 3.342(a)(2).

[3] 34 Tex. Admin. Code § 3.342(a)(6).

[4] 34 Tex. Admin. Code §§ 3.342(a)(5)(A)-(C).

[5] 34 Tex. Admin. Code § 3.342(a)(5)(A).

[6] 34 Tex. Admin. Code § 3.342(e)(2).

[7] Id.

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