Texas – Roundtable Discussion Regarding Internet Hosting and Nexus Policies

SALT Report 2458 – The Texas Comptroller announced that the state’s Tax Policy Division will be holding a roundtable meeting to discuss House Bill 1841 and how it should impact the state’s policies on Internet hosting and nexus. At issue is section 151.108, a rule that was written in response to House Bill 1841. The rule addresses purchasers of Internet hosting services when those purchasers are engaged in business in Texas.

Specifically, section 151.108 provides that:

(a) Internet hosting means providing to an unrelated user access over the Internet to computer services using property that is owned or leased and managed by the provider and on which the user may store or process the user’s own data or use software that is owned, licensed, or leased by the user or provider.
(b) A person whose only activity in this state is conducted as a user of Internet hosting is not engaged in business in this state.
(c) A person providing Internet hosting is not required to:

(1) Examine a user’s data to determine the applicability of this chapter to a user,
(2) Report to the comptroller about a user’s activities, or
(3) Advise a user as to the applicability of this chapter

However, Texas law provides that any person who owns or leases servers in Texas has nexus and must collect and remit tax on sales of taxable items. Therefore, the Comptroller’s position is that the law has no effect on whether the Internet hosting provider is engaged in business in Texas.

Additionally, HB 1841 did not change the taxability of Internet hosting services, which are taxable as data processing under Tax Code Section 151.0035 and Rule 3.330. Therefore, sellers of these services with nexus in Texas are required to collect sales or use tax on its charges for these services when sold to Texas purchasers.

Currently, no date has been set for the roundtable meeting, but it will most likely take place in June after the 83rd Legislature adjourns. If you’d like to attend the roundtable meeting and participate in the development of future policies regarding this topic please email Bryant Lomax at Bryant.Lomax@cpa.state.tx.us.

For Further Information

Texas Comptroller of Public Accounts – Tax Policy News April 2013