Rackspace comments on changes to Texas Sales Tax Rules

Rackspace has been in discussions with the Texas Comptroller’s Office and its tax advisors to address the recent changes to the state rules governing Texas sales tax.

The new controversial language states, “A person is engaged in business in Texas if the person has nexus with the state as evidenced by, but not limited to, any of the following: […] derives receipts from a rental or lease of tangible personal property that is located in this state or owns or uses tangible personal property that is located in this state, including a computer server or software;[…]”

The Comptroller’s Office has indicated that the language was not intended to be construed as so broad as to extend nexus to anyone using a server in Texas. William Hamner, Director of Tax Administration indicated that the agency’s intent is not to extend nexus to a person simply using a third-party server in Texas for an activity such as webhosting.  However, since taxable items are subject to taxation in both electronic and physical form, the sale of data, such as music files, housed on a Texas server could create nexus for the owner of the data.

Because of the unintended confusion that has resulted from this change, we understand that the Comptroller’s Office will issue a new rule proposal in order to properly clarify the intent of the rules change and more clearly state agency policy on this matter.

We will continue to actively pursue a positive outcome on this issue with the Comptroller’s Office and will continue to monitor and report on any new developments that we believe to be important to our customers.

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  • Just to pick a nit, I don’t think music and other copyrighted material is actually “sold” (i.e., ownership title is transfered). It’s more like “licensed” for use.

    Does the Texas sales tax law include revenue from licenses?

  • Joel Parker Henderson

    Kudos to the Rackspace and Slicehost teams for working on this. I’m a longtime customer of both companies, and now moving many sites out of Texas because of the Texas Comptroller’s Office. Rackspace and Slicehost technical people have been providing excellent service to help with this.