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Streaming Video Providers Subject to Texas Sales Tax

On July 31, 2012, the Texas Comptroller issued a letter ruling concluding that businesses that stream videos over the internet to customers in Texas are subject to state and local sales tax as a cable television service provider. The letter ruling can be found on the Comptroller's State Tax Automated Research database (STAR), indexed as STAR Accession No. 201207532L.

The business that requested the letter ruling charges its customers an annual subscription membership fee, after a one month free trial, that allows their customers to view unlimited streaming videos, borrow from a library of electronic books, and receive free or discounted shipping on certain items. The ruling states that the business's annual fee to its Texas customers is subject to state and local taxes.

Technically, this letter ruling applies only to the business that requested the ruling and cannot be cited as precedential law by either the Comptroller's office or other taxpayers. However, the ruling is the first indication that the Texas Comptroller's office intends to classify online services such as these as a "cable television service" subject to sales tax under Texas Tax Code Section 151.0033.

With the ever-increasing suite of online services being offered to a national customer-base, businesses of this nature need to consider the implications of doing business in Texas - whether that means charging Texas customers sales tax and filing sales tax returns or choosing not to do business in Texas.

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