The Comptroller of Texas proposed amendments (via Executive Order) to Texas Administrative Code section 3.330 (Data Processing Services) to end the “double taxation” of marketplace and platform fees.
During the last year, the Cabinet of his predecessor adopted an expanded definition of data processing services. With the new definition, the services that e-commerce marketplaces or digital platforms provide to the underlying suppliers or customers for fees are defined as data processing services, and as such are taxable under Sales and Use tax provisions in Texas.
Marketplace and Platform Fees
Sales Tax and Data Processing Services
Current taxability framework of data processing services taxes underlying supply, supply of physical goods, e-services or intangible goods from third-party service providers or suppliers registered on the marketplace; and targets also the marketplace or platform fee, which the marketplace or platform operator charges to third parties.
In effect, the customer pays the Texas sales tax on its purchase, while the registered third-party user of the marketplace or platform services pays sales tax on fees that the platform or marketplace charges to its users for facilitating the purchase.
Digital Platform and E-Commerce Marketplace Fees
In practice, this means that third-party vendors registered on e-commerce marketplaces such as Amazon, eBay, or Etsy are paying sales tax on the marketplace fees, while customers are paying sales tax on their purchases. Uber drivers are paying sales tax on the Uber fees for the facilitation of the ride; restaurants are paying sales tax on top of the fees which platform charges for the facilitation of the delivery(platforms like Uber Eats, DoorDash).
The same rules are applicable to gig-economy service providers, or short-term Booking rentals.
Amendment to the Taxation of Data Processing Services
Newly elected Comptroller proposes important amendments to the taxability rules of data processing services. Practically, it proposes the abolition of the Texas sales and use tax on e-commerce marketplace or digital platform fees. Fees, such as commissions, booking fees, and the like, are charged by marketplace or platform operators to third parties for facilitating the underlying transaction.
Executive Order gets will abolish the imposition of the sales and use tax on the marketplace fees tied to:
- sellers offering products on marketplace platforms like Amazon, eBay, and Etsy;
- prepared food and grocery delivery such as DoorDash, Uber Eats;
- short-term accommodation rental;
- ride-hailing and other transportation services;
- vehicle rental or sharing;
- pet care and pet-sitting services; and
- household, personal, and errand-running services.
Next Steps
The Comptroller directs the responsible agency to publish a proposed amendment to Rule contained in section 3.330 to remove marketplace and platform fees from the definition of taxable data processing services.
The proposed amendment will be filed with the Texas Secretary of State and published in the Texas Register, followed by a 30-day public comment period.
After these administrative procedures and signature of the Comptroller, the amendment to the definition of the data processing services shall become effective.