Taxable data processing does not include payment processing services in Texas



In an effort to curb the recent expansion of the Texas Comptroller of the tax imposed on data processing services, the Texas legislature has specifically excluded payment processing services from sales and use tax. Texas taxes data processing services, which include “word processing, data entry, data retrieval, data research, information compilation, payroll data production and accounting. ‘business. “. . and other computerized storage or manipulation of data and information. Texas Tax Code § 151.0035. The Texas Controller has traditionally excluded merchant credit / debit card processing from the definition of “data processing services”, but has recently started to question this exclusion according to the Sponsor’s Statement of Intent. The controller’s change in policy to subject payment processors to tax could have resulted in “Texas businesses paying hundreds of millions of dollars in additional taxes each year.” On June 14, 2021, Texas Governor Greg Abbott signed SB 153, which specifically excludes from the data processing tax certain payment processing services, such as (i) “services intended exclusively to encrypt electronic payment information for acceptance over a payment card network ‘, or (ii) settle an electronic payment transaction by a downstream payment processor, a point-of-sale payment processor, a taxpayer engaged in the transmission business of ‘money, a federally insured financial institution and payment card network.


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