Texas – Electronic Bill Payment Service Taxable as Data Processing

SALT Report 1839 – The Texas Comptroller issued a letter ruling regarding an out-of-state company that provides software and online services to financial institution so their customers can make electronic payments from their personal checking or savings accounts.

The Taxpayer provides financial institutions with a web-based application that facilitates bill delivery and authorizes electronic payments. With the help of the Taxpayer’s system, qualified users can make payments, add payees, view or edit pending payments, and access records of past payment transactions. Once a user authorizes a payment, the Taxpayer’s system immediately processes the payment by transmitting debits and credits electronically.

It was the Taxpayer’s responsibility to monitor and support all hardware, software, networking equipment, and mainframe applications.  Also, as part of the service agreement, the Taxpayer would prepare weekly and monthly reports regarding service outages as well as a report that detailed all payments that were processed during a specific reporting period.

The Comptroller determined that the Taxpayer’s electronic bill payment services were taxable because they were similar to the data processing services enumerated in Texas Tax Code Section 151.0101(a)(12).  Further, the Comptroller determined that the object of the Taxpayer’s service was “to provide an electronic bill payment service” rather than providing nontaxable professional services that is separate from the activities defined as data processing.

Additionally, the Taxpayer did not qualify for the multistate benefit exemption for data processing services because the Taxpayer did not have a sales tax permit and did not remit tax on the services provided in Texas.

For Further Information:

Texas Comptroller of Public Accounts – Decision, Hearing No. 105,009