84(R) - 2015
Relating to the application of the sales and use tax to certain computer program transactions.
A fiscal note dated April 29, 2015 anticipates a negative two-year net impact to General Revenue Related Funds from CSSB 755 of $2,800,000 through the biennium ending August 31, 2017, if the effective date of the bill is September 1, 2015; or a negative impact of $3,300,000 through the biennium ending August 31, 2017, if the effective date of the bill is June 1, 2015.
The fiscal note adds that there would be a corresponding loss of sales and use tax revenue from local taxing jurisdictions displayed in the above tables.
Senate Bill 755 would amend section 151.006 of the Tax Code to add to the definition of a "sale for resale" the "sale of a computer program to a provider of Internet hosting who acquires the computer program from an unrelated vendor for the purpose of selling the right to use the computer program to an unrelated user of the provider’s Internet hosting services in the normal course of business and in the form or condition in which the provider acquired the computer program."
The provider would have to offer the user a selection of computer programs available to the public for purchase directly from an unrelated vendor and to execute a written contract with the user that would specify the name of the computer program sold to the user and would include a charge to the user for computing hardware.
The user would have to purchase the right to use the computer program from the provider through the acquisition of a license and the provider would not retain the right to use the computer program under that license.
The second chamber sponsor is Representative Angie Chen Button.
Vote Recommendation Notes
No amendments or modifications have been made to the bill since we reported on it. We continue to support it.
First chamber analysis below:
Under current law, the sale for resale of a taxable item is exempt from the sales and use tax (Section 151.302 of the Tax Code).
The sale-for-resale exemption is based on the idea that only the end user of a taxable item should be taxed on it. This prevents the tax from adding up at each step of the sale process, with the cost being passed on to the final user in the form of a higher price on the item.
Senate Bill 755 would rightly apply the sale-for-resale exemption to computer programs sold through an Internet hosting provider. It would, as a consequence, limit the scope of government. We support this bill.