Texas Comptroller of Public Accounts STAR System
July 31, 2012
Re: Taxpayer Ruling Request – Subscription Membership
Thank you for your letter regarding the taxability of an annual subscription
fee to join a customer loyalty membership.
“Services” offers for sale a subscription membership (“Subscription”) in a
customer loyalty program. After a free one-month trial period, a customer may
continue to receive the “Subscription” benefits by paying a $*************
yearly membership fee. During the free trial period, and thereafter for those
who purchase “Subscription”, customers are allowed to:
* view an unlimited number of instant videos (i.e., streaming movies and
television shows) on various “Services” compatible devices;
* borrow designated electronic books from a library developed by “Services”
using the customer’s “Services” devices; and,
* receive free two-day shipping or discounted one-day shipping on eligible
purchases from ”Services” and third-party merchants participating in
“Services” mailing fulfillment program.
(1) Is the “Subscription” membership subject to sales tax when sold to a
customer located in Texas?
If so, is the “Subscription” membership taxable as an information service?
(2) Are any sales or use taxes due on the free one-month trial period of
(3) If “Subscription” membership fees are taxable, where is the proper location
to source the sales?
Response: Source the local taxes to the customer’s location in Texas.
The “Subscription” membership is a bundled transaction consisting of two
distinct taxable items (i.e., instant streamed video and electronic books
loaned to customers from “Services” library) and one distinct nontaxable item
(i.e., a prepaid charge for shipping, which is not taxable. A charge by the
seller to a purchaser for shipping becomes taxable when it is part of the sales
price of a taxable item sold. See Rule 3.303 and Tax Code Sec. 151.007.). Tax
is due on the total amount charged for the yearly “Subscription” membership.
If the charges for each item in the bundle were separately stated, tax would
only be due on the charges for the taxable instant videos and electronic books
charges. No tax would be due on the separately stated charge for the prepaid
shipping. Tax Code Sec. 151.103 (c) states “When several taxable items are sold
together and at the same time, the use tax is determined on the sum of the
sales prices of the items sold exclusive of any item the storage, use, or other
consumption of which is exempted by this chapter.”
“Services” does not currently have a place of business in Texas. As a result,
the total “Subscription” membership fee charged for the transaction is subject
to use tax rather than sales tax. The proper local use tax allocation
“Services” should use is based on the customer’s location in Texas.
Tax Code Sec. 321.205(c) states, “(c) If a taxable item is shipped from outside
this state to a customer within this state and the use of the item is
consummated within a municipality that has adopted the tax authorized by this
chapter, the item is subject to the municipality's use tax and not its sales
tax. A use is considered to be consummated at the first point in this state
where the item is stored, used, or consumed after the interstate transit has
ceased. A taxable item delivered to a point in this state is presumed to be
for storage, use, or consumption at that point until the contrary is
Providing instant videos constitutes a taxable cable television service. Tax
Code Sec. 151.0033 defines a cable television service as “…the distribution of
video programming with or without use of wires to subscribing or paying
customers.” Tax Code Sec. 321.203(j) states that “(t)he sale of services
delivered through a cable system is consummated at the point of delivery to
The “borrowing” of electronic books from “Services” library constitutes a
taxable information service. Tax Code Sec. 151.0038(a)(2) defines an
information service to include electronic data retrieval.
This opinion is based on the facts presented and current law.
William S. Hamner
Director of Tax Administration
ACCESSION NUMBER: 201207532L
DOCUMENT TYPE: L
TAX TYPE: SALES