"Data Processing Services" And Sales And Use Tax: The Problem With Applying A Stagnant Definition To A Dynamic Industry

Last week, I posted a brief summary of sales tax issues related to software and computer programs. However, as the characterization and taxability of "data processing" is such a complex and hotly contested area, I felt a separate post was merited. The definition of "data processing" was implemented in 1987, and has not been substantially updated. As all readers are aware, in that same time span the use of computers has evolved from being little more than an afterthought to being an essential part of life, and are the primary engine for both communications and business. As discussed below, the disconnect between (i) the ever-changing landscape of computers and (ii) the stagnant definition of "data processing" services can create a host of problems for Texas taxpayers.