Sales Tax on Design & Development Services

[Daniel Short]

We're finally starting to get some local clients after doing most of
our development work for out-of-state companies. Is anyone here up to
speed on sales tax requirements for in-state design and development
services? I didn't have to charge tax for design services for in-state
clients when we were based out of California, but as a Texas
corporation I'm not entirely sure what the rules are.

Thanks,

Daniel Short

[Amy Gelfand]

Daniel,

Web designers are liable for sales and use tax for TX residents. You can learn more about sales tax rules and apply online for a TX sales tax permit at the State Comptroller's Web site: http://window.state.tx.us/

It's always best to consult a CPA about tax issues, of course. The rules seem a bit murky to me, plus I know many freelancers who are not aware that Web design is a taxable service (so even if you're working by the hour and not selling a piece of software per se, your service fee would be taxable).

Amy Gelfand, Design and Communications Professional
Gelfand Design
www.gelfanddesign.com
"Computers are like Old Testament gods--lots of rules and no mercy."

--- On Sun, 12/27/09, Daniel Short <d...@sitedriveinc.com> wrote:

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[Michelle McGonagle]

According to Texas Sales Tax Law, any service rendered using a computer is subject to sales tax if the client resides in Texas. 

_______________________________________________

Michelle McGonagle  |  Director of Business 
P: (512) 850-6490  |  mich...@jortegagroup.com
6001 W Parmer Ln  |  Suite 370-108  |  Austin TX 78727

J Ortega Group | Twitter | Facebook
_______________________________________________

[Eric Salys]

That is not correct according to my CPA.  Perhaps it is for your business and your situation but it is not the case for all businesses and all situations.  Example:  Client hires Company A to develop a program.  Company A outsources a part, or all, of it to Company B.  Company A does not pay taxes to Company B because the taxes will be collected when Company A sells the final product to the Client.  Otherwise it is double taxation.  There are lots of situations in which taxes are not collected.  My suggestion is to join a CPA discussion group rather than asking this group tax questions.

[Michelle McGonagle]

Well of course when you are dealing with sub-contractors. Sub-contractors do not pay sales taxes. I was referring to the situation between Company A and the client directly. 

See the section titled Data Processing:

http://www.window.state.tx.us/taxinfo/taxpubs/tx96_259.html

05:46

_______________________________________________

Michelle McGonagle  |  Director of Business 
P: (512) 850-6490  |  mich...@jortegagroup.com
6001 W Parmer Ln  |  Suite 370-108  |  Austin TX 78727

J Ortega Group | Twitter | Facebook
_______________________________________________

[Keith Aric Hall]

Agreed. In general, the services provided to the end client are taxable. Who is responsible for collecting and remitting the taxes depends on the situation, but ultimately the services are subject to sales tax.

[Ryan Joy]

Sales tax is ridiculously complex sometimes. For example, HTML
programming is considered a Data Processing Service and is subject to
tax. Contract programming is not taxable (i.e. you create a program
and give exclusive rights to the client). But programming that is
embedded in an HTML page (PHP, ASP, etc) is subject to the Data
Processing Service sales tax. Also, only 80% of the data processing
service fees are subject to tax.

The advice to consult a CPA is ultimately the best option, but if
you're trying to answer a quick question you can always search
http://cpastar2.cpa.state.tx.us/q_multi.html. Warning: you're likely
to leave more confused than when you entered.

You can also email questions via this form: https://www.window.state.tx.us/taxhelp/

Good luck and happy new year!

-RYAN JOY
http://twitter.com/atxryan

On Dec 29 2009, 12:27 pm, Keith Aric Hall <khall...@gmail.com> wrote:
> Agreed. In general, the services provided to the end client are taxable. Who is responsible for collecting and remitting the taxes depends on the situation, but ultimately the services are subject to sales tax.
> On Dec 29, 2009, at 12:14 PM, Michelle McGonagle wrote:
>
> > Well of course when you are dealing with sub-contractors. Sub-contractors do not pay sales taxes. I was referring to the situation between Company A and the client directly.
>
> > See the section titled Data Processing:
> >http://www.window.state.tx.us/taxinfo/taxpubs/tx96_259.html
> > 05:46
>
> > _______________________________________________
> > Michelle McGonagle  |  Director of Business

> > P: (512) 850-6490  |  miche...@jortegagroup.com

> > 6001 W Parmer Ln  |  Suite 370-108  |  Austin TX 78727
> > J Ortega Group | Twitter | Facebook
> > _______________________________________________
>
> > On Dec 29, 2009, at 11:40 AM, Eric Salys wrote:
>
> >> That is not correct according to my CPA.  Perhaps it is for your business and your situation but it is not the case for all businesses and all situations.  Example:  Client hires Company A to develop a program.  Company A outsources a part, or all, of it to Company B.  Company A does not pay taxes to Company B because the taxes will be collected when Company A sells the final product to the Client.  Otherwise it is double taxation.  There are lots of situations in which taxes are not collected.  My suggestion is to join a CPA discussion group rather than asking this group tax questions.
>

> >> On Tue, Dec 29, 2009 at 12:02 AM, Michelle McGonagle <miche...@jortegagroup.com> wrote:
> >> According to Texas Sales Tax Law, any service rendered using a computer is subject to sales tax if the client resides in Texas.
>
> >> _______________________________________________
> >> Michelle McGonagle  |  Director of Business

> >> P: (512) 850-6490  |  miche...@jortegagroup.com

> >> 6001 W Parmer Ln  |  Suite 370-108  |  Austin TX 78727
> >> J Ortega Group | Twitter | Facebook
> >> _______________________________________________
>
> >> On Dec 27, 2009, at 9:57 AM, Daniel Short wrote:
>
> >>> We're finally starting to get some local clients after doing most of
> >>> our development work for out-of-state companies. Is anyone here up to
> >>> speed on sales tax requirements for in-state design and development
> >>> services? I didn't have to charge tax for design services for in-state
> >>> clients when we were based out of California, but as a Texas
> >>> corporation I'm not entirely sure what the rules are.
>
> >>> Thanks,
>
> >>> Daniel Short
>
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> >>> Our Web site:http://www.RefreshAustin.org/
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> >>> You received this message because you are subscribed to the Google Groups "Refresh Austin" group.
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[Daniel Short]

Thanks everyone for your input. Hopefully I can get it all figured out.

Okay :), after all of this mess, who's got a good local CPA who's up
to speed on this whole interwebs thing who can straighten me out on
all of this junk.

Dan

[Shari Bare]

This is an interesting, and potentially scary, topic.

I come from a graphic/web design background (living in California), where as a sole proprietor I never collected sales tax. I didn't know anyone who did. Then I ran my own photography & design company and learned all about the joys of sales tax :(  Like sales tax on development services, there are so many different rules. 

While it's certainly an over simplification, the easiest and safest thing IMHO seems to be, when in doubt, collect the sales tax. I learned this from dozens of respected business owners. One story that sticks in my mind is of a photographer in California who had to pay almost $50,000 of back sales tax. At that point, since it was from years back, he really couldn’t go back to the clients. So I feel like you’re safest collecting it up front. You’re not charging sales tax; you’re just collecting it. I make sure to stress that to clients.

Of course, this is from the perspective of a sole proprietor or very, very small company. And i was not living in Texas. Each state differs. If you run a larger operation and/or have huge billings, it might make sense to pay an accountant to analyze all this for you. For me, it was just too time consuming and expensive to try to sort it all out. Plus, I found clients were more confused when you tried to explain collecting tax on just a percentage of the bill rather than the overall invoice.

I need a new accountant too, and would love some recommendations.

Happy New Year!

.  .  .  .  .  .  .  .  .  .  .  .  .  .

SHARI BARE

UI / UX / Visual Designer

.  .  .  .  .  .  .  .  .  .  .  .  .  .

415.260.2614 / phone

desig...@gmail.com

creativehotlist.com/s-bare

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