34 Tex. Admin. Code § 3.366 - Internet Access Services
(a) Definitions.
The following words and terms, when used in this section, shall have the
following meanings, unless the context clearly indicates otherwise.
(1) Internet--collectively the myriad of
computer and telecommunications facilities, including equipment and operating
software, that comprise the interconnected worldwide network of networks that
employ the Transmission Control Protocol / Internet Protocol, or any
predecessor or successor protocols to the protocol, to communicate information
of all kinds by wire or radio.
(2)
Internet access service--a service that enables users to access content,
information, electronic mail, or other services offered over the Internet and
may also include access to proprietary content, information, and other services
as part of a package of services offered to consumers. The term does not
include telecommunications services or other taxable services, unless these
services are provided in conjunction with and are merely incidental to the
provision of Internet access service. For example: Basic Internet access
service includes the ability to access general information (an information
service) and/or the ability to send information or messages via e-mail (a
telecommunication service). These services are incidental to the provision of
Internet access services and, unless separately stated, are considered part of
the Internet access service. On the other hand, a person selling information
services using the Internet, such as a company selling stock market prices, is
not providing an Internet access service and must collect tax on the charge for
its information service.
(b) Amount subject to tax. The sale, use, or
other consumption in this state of Internet access service is exempt from sales
or use tax in an amount not to exceed the first $25 of a monthly charge. This
exemption applies to the total sales price the service provider charges a
purchaser for Internet access, without regard to whether the service provider
charges one lump-sum amount or separately bills the purchaser for each user.
For example: Company A buys Internet access for 25 employees at several
locations. The first $25 of the total charge to Company A is exempt and not the
first $25 of each user's apportioned cost. Because a "purchaser" is a single
entity and the $25 exemption is provided per purchaser, not user, account, or
site, separate billings for employees or for different locations will not
reduce the taxable amount. This exemption applies without regard to:
(1) whether the Internet access service is
bundled with another service, including any other taxable service; or
(2) the billing period used by the service
provider. Example: An Internet access service is provided for a set fee of $99
per year. The fee will qualify in its entirety for exemption because the
monthly charge is less than $25. The exemption applies to services performed on
or after October 1, 1999. The exemption does not apply to services performed
before the effective date and billed or paid for after the effective date of
the exemption.
(c) Hold
permits. All providers of Internet access services must obtain a Texas sales
and use tax permit and collect tax on the total amount subject to tax as
provided in subsection (b) of this section, or accept a properly completed
resale, exemption, or direct payment permit exemption certificate in lieu of
collecting tax. See §
3.285 of this title (relating to
Resale Certificate; Sales for Resale); §
3.287 of this title (relating to
Exemption Certificates); and §
3.288 of this title (relating to
Direct Payment Procedures and Qualifications).
(d) Resale certificates.
(1) Providers of Internet access services may
issue resale certificates in lieu of tax to suppliers of tangible personal
property only if care, custody, and control of the property is transferred to
the customers. For example, a service provider purchases diskettes to transfer
software to customers. The service provider may purchase the diskettes tax free
by issuing a resale certificate. However, promotional diskettes provided to
potential customers are not resold and are taxable.
(2) An entity that markets Internet access
services for others and gives away, or sells for a nominal amount (less than
25%), computer-related equipment as an inducement to sign an Internet service
contract is considered the consumer of the equipment and must pay tax on its
acquisition cost of the equipment. An entity that markets Internet access
services for others and also sells related equipment for 25% or more of
acquisition cost is a retailer of the equipment. The entity may buy the
transferred equipment tax free for resale and collect tax on its charge to its
customers. For example, Company A markets Internet access services provided by
Company B. Company A purchases computers for $400 that it offers to customers
for free when a customer signs a contract for Internet access service with
Company B. Company A is the consumer of the computer and owes tax when it
purchases the computer. If Company A sells the computer to its customer for
$100 or more (25% or more of cost), Company A may purchase the computer tax
free for resale but must collect tax from its customer on the sales price of
the computer ($100). If Company A sells the computer for less than $100 under
the condition that the customer will purchase Internet access service from
Company B, the nominal amount paid by the customer is not taxable and Company A
must pay tax on the original purchase price of the equipment.
(3) A resale certificate may be issued for a
service if the buyer intends to transfer the service as an integral part of
taxable services. A service will be considered an integral part of a taxable
service if the service purchased is essential to the performance of the taxable
service and without which the taxable service could not be rendered. For
example, a provider of Internet access service may purchase tax free for resale
telecommunication services used to provide the Internet access
services.
(e) Service
benefit location. If both the Internet access service provider and the customer
are located in Texas, Texas tax is due.
(f) Service benefit location - multi-state
customer.
(1) To the extent Internet access
service is provided to and accessed by a multi-state customer with users both
within and outside of Texas, the service is presumed to be used at the location
from which the Internet is accessed. The service is not taxable to the extent
it is used outside Texas. A multi-state customer may use any reasonable method
for allocation that is supported by business records.
(2) A multi-state customer purchasing
Internet access services for the benefit of both in-state and out-of-state
locations is responsible for issuing to the Internet access service provider an
exemption certificate asserting a multi-state benefit, and for reporting and
paying the tax on that portion of the Internet access charge that will benefit
the Texas location. An Internet access service provider that accepts such a
certificate in good faith is relieved of responsibility for collecting and
remitting tax on transactions to which the certificate relates.
(g) Local taxes.
(1) For local sales tax purposes, city,
county, transit authority, and/or special purpose district sales taxes are due
if the Internet access service provider has only one place of business (the
location from which the provider accepts orders for Internet service) within
the boundaries of a local taxing entity. Local sales tax must be collected
based upon the tax rate at that location, except that no transit authority
sales tax is due on services provided to a location outside the boundaries of
the transit area. In the case of multiple locations, if an order for Internet
service is taken at one location but the service is provided from another
location from which customers may order service, the place of business from
which the service is provided will determine to which local taxing entity the
tax is allocated.
(2) For the
purposes of the local use tax, if a place of business is outside the boundaries
of a local taxing entity, the Internet access service provider will be required
to collect local use tax if the client is within the local taxing entity and
the service provider has representation in the local taxing entity as outlined
in §
3.286 of this title (relating to
Seller's and Purchaser's Responsibilities). Even if the service provider is not
required to collect local use tax, the client is still liable for the tax if
the service is received or a benefit is derived from the service within the
boundaries of a local taxing entity.
(3) An in-state customer purchasing Internet
access services for the benefit of locations in more than one local taxing
entity is responsible for issuing to the Internet access service provider an
exemption certificate claiming a multi-city benefit and for determining the
extent of benefit for each entity. The local use tax for each entity must be
reported, allocated, and paid by the customer. An Internet access service
provider that accepts in good faith an exemption certificate claiming a
multi-city benefit is relieved of responsibility for collecting and remitting
local tax on transactions to which the certificate relates.
(h) Use tax. If a provider of an
Internet access service is not engaged in business in Texas or in a specific
local taxing jurisdiction and is not required to collect Texas tax, it is the
Texas customer's responsibility to report and pay the state and local use tax
directly to this office.
Notes
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