"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."
The Comptroller's response here is the exact opposite of the language, based on what I'm reading. If "the language was not intended to be construed as so broad as to extend nexus to anyone using a server in Texas" then why use the language "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: [...] uses tangible personal property that is located in this state, including a computer server".
The "sale of data, such as music files" is a specifically defined process, wholly separate from "using personal property, including a computer server."
IMO, the state got caught trying to overreach, and they're playing the innocent "oh that's not what we meant!" hand. If it's not what you meant, change the language.
Words have meanings - someone knew exactly what he/she was doing when that was drafted. Especially given the large number of data centers hosting servers in Texas, with its central geography, cheap land/power, etc. The pain of migrating away is too great and expensive - people will just comply with the new taxes and most will stay. Some may leave, but it'll take a long time. In the short term - few years, TX will get extra income.
"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."