Texas Comptroller of Public Accounts    STAR System


July 31, 2012


Re: Taxpayer Ruling Request – Subscription Membership

Dear *************,

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.

You asked:

(1) Is the “Subscription” membership subject to sales tax when sold to a 
customer located in Texas?
Response: Yes.

If so, is the “Subscription” membership taxable as an information service?
Response: No.

(2) Are any sales or use taxes due on the free one-month trial period of 
“Subscription” membership?
Response: No.

(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 consumer.”

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

DATE: 07/31/2012