No more charging sales tax on Website Hosting in Texas
Posted on Oct 13, 2011 by Paul White
Scroll to bottom for final answer
The Texas Comptroller of Public Accounts emailed me yesterday with a update of changes to the Texas State Tax Codes. As I glanced down this 16 page PDF, I noticed House Bill 1841 ( Effective Immediately ) Use of Internet Hosting
Does Not Create Nexus.
"This bill provides that a person whose only activity in this state is as a user of Internet hosting
is not engaged in business
This tells me that I no longer have to charge sales tax to my out of state clients who host their websites
with me. Awesome! However don't take my word for it. Texas Tax code is rather complex, and I plan to call tomorrow and ask the Texas Comptroller myself.
However my Texas clients still get the shaft. Considering how many large hosting
companies there are in Texas this move made sense, as most other states do not charge sales tax to web hosting
. I remember an article years ago about some large hosting
company that was forced to pay millions in back taxes for not charging sales tax to their hosting
I called the Texas State Comptrollers office today to get clarification on this. I was told that I DO have to charge sales tax for hosting
to my clients in other states. House Bill 1841, just made it so that if my out of state clients are hosting
their website with me ( with the server in Texas ), that they no longer are considered to have a Nexus ( Business
entity ) in Texas. I guess all along because the Tax code was so non specific that technically my out of state clients were supposed to pay Texas franchise taxes just for having their website hosted on my Texas based server. Good luck enforcing that! House Bill 1841 changes this.
That is interesting that they needed a bill to clarify this. I am still uncertain about the whole sales tax thing though. I have talked to multiple guys who also host servers, and some say you have to pay, others say you don't. In my experience if you call the Texas Comptrollers office and they are in doubt, they will say, "YES, YOU HAVE TO CHARGE SALES TAX". But they also said that for an exact answer to mail a letter to the Texas Comptrollers office attention POLICY.
So now I am going to use cutting edge technology and physically mail a letter with my concerns toTexas Comptrollers Office
P.O. Box 13528
Austin, TX 78711
Hopefully they can give me a more exact answerUPDATE 12/12/2011
So after mailing them a letter and not getting an response. I tried calling them again today. This time I got a different person on the phone. They took a while to look it up, and finally had to turn it over to a senor person in the office, who also had to do some searching to find an answer. Finally got an answer. Web Hosting
is classified as a Data Processing Service. They said I DO NOT have to charge sales tax for hosting
to my out of state clients. My in state clients of course still get have to pay sales tax. However they did recommend I get a certificate from my out of state clients stating that they have no business
offices within Texas just in case it was questioned.
So final word is NO TEXAS SALES TAX FOR WEB HOSTING FOR OUT OF STATE CLIENTS UPDATE 6/19/2012
Got a comment from poster stating that for in state customers you only apply sales tax to 80% of the amount. The other 20% is exempt. This goes for Hosting
, Web Design, and other various Data Processing services. Thanks Neil for the update!
Actually, you don't ever charge sales tax to non-state residents (ie customers that don't have Nexus here). That would be a violation of the Commerce Clause of the US Constitution. However, your out of state customers may theoretically be responsible for remitting sales/use taxes for their purchase to their home state. You are not responsible for collecting that tax for them. If you're Amazon and have affiliates in every state, then some states have Amazon laws that cause those affiliates to trigger nexus and then Amazon has to collect sales tax which is remitted to those individual states (a nightmare of paperwork). Unless you have operations/property/etc that creates nexus in that remote state, you do not collect sales tax on behalf of that state, and Texas cannot charge sales tax for goods/services delivered out of state. Essentially, in most cases, you DO NOT collect sales tax to someone out of state. Get a letter ruling from the Comptroller's office, as that rep was simply wrong. You're right -- most of the time, they'll err on the side of "yes, you need to collect sales tax always" Generally, though, they're very polite and professional. Such a treat after dealing with state employees in NY.