Features impact taxability of online training for employees in Texas

Be careful with the features included in online training for workers in Texas. Purchasing certain features may make the software subject to sales and use tax.

That’s according to a recent private letter ruling issued by the Texas Comptroller of Public Accounts. The letter ruling discusses a company that provided clients with various online learning plans, including plans where employers could directly sponsor employees who wanted to earn college degrees or vocational licenses. It wanted to know if all of its services were exempt from taxes under state law.

The comptroller said most of its programs were tax exempt – except for one, called the “teacher plan.” It contained most of the same features as the other education plans, including assessments, tutoring and transcripts for students. However, it also had features designed to make life easier for instructors to manage each course, such as lesson plans, online gradebooks and ideas for educational projects.

Ultimately, these features allowed instructors to keep better track of the data related to students and their lessons (e.g., students’ grades, individual students’ progress). Specifically, they helped teachers with “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information.”

Because of this, the comptroller said that the teacher plan actually counted as a “data processing service” under existing law. And data processing services are taxable. Even though other, nontaxable services were bundled into the plan, since they were all offered together and couldn’t be purchased separately, they made the entire plan taxable.