Are Marketing Services in Texas Liable for Taxes? – Lead finders
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 Are Marketing Services in Texas Liable for Taxes?

Introduction

Taxation is a not favourite topic to discuss for many, however, as least not for those dealing with the digital marketing services. There are businesses in Texas who are offering digital marketing services but there still needs some clarification on what is taxable.

In this blog, we review the taxation and provide clarity for marketing services in Texas. Let’s get started.

What Are Digital Marketing Services?

Everything that is digital. Digital marketing services includes a variety of different strategies that are designed to help promote a business through various digital channels. The services include:

  • Search Engine Optimization (SEO)
  • Social Media Marketing (SMM)
  • Content creation and content marketing (blog posts, articles, social media, thought leadership)
  • Pay-per-click (PPC) Advertising
  • Email Marketing
  • Web Design and Web Services

These services are essential in maintaining an online reputation and increasing sales for the business.

There are certain types of services in Texas that are taxable and some that are not taxable as per the law. Here is the summary:

  • Data Processing Services: A few activities of digital marketing like hosting of the website, data entry, including some parts of SEO, can be treated as taxable data processing services. However, the state gives a 20% exception for such services in order to promote the technology industry.
  • Software as a Service (SaaS): SaaS solutions which are software platforms that customers access remotely such as analytic tools or content management system, these are under the category of data processing and sales tax applies.
  • Advertising Services: In most instances general advertising services such as digital advertising and social media campaigns do not attract Texas state sales tax except in cases where taxable goods or data processing services are bundled.
  • Consulting and Professional Services: A service such as SEO or content creation which is performed in the form of consulting where nothing physical will be handed over may not attract tax. That being said, ‘Any data driven working parts’ such as, analytics reporting could trigger taxability.

Basic Tax Rules for Digital Marketing in Texas

  • Nexus rules: Texas has a nexus and irrespective of having business presence in Texas, it levies sales tax on businesses with annual sales volume equal to or more than $500,000. This also includes digital service providers. A permanent establishment is not necessary.
  • Taxing of Services: For SaaS and data-telco (telecommunications) services, the tax rate is determined by the location of the client. Wherein the service is deemed useful for the patrons residing in Texas where the service is provided, the interest will also be imposed.
  • State Tax Rates: There is a 6.25% state sales tax in Texas and local jurisdictions are permitted to add another 2% so the cumulative tax stands at 8.25%
 

What Compliances Must the Businesses Follow?

  • Acquire A Sales Tax Permit: Businesses providing taxable services are required to get registered under the Texas Comptroller’s Office to collect and remit sales tax.
  • Employ Multi-state Benefit Exemption Certificates: Where the service is available in Texas and other states, such certificates are supposed to assist in determining how much tax is relevant to the Texas area.
  • Seek Assistance from Tax Experts: Tax payment, especially with regard to digital services, can sometimes be a daunting challenge. There are tax advisors who can engage in tax planning for the taxpayer and, in this case, the digital service provider.
 
 

It depends. Pure consulting services are most likely not subject to tax; however, SEO that includes data input (for example, keyword analysis) may be taxable.

No. There is generally no tax on such services unless the services are combined with taxable items or data services.

A penalty, an interest on the unpaid taxes, and an audit if one is carried out. Businesses that fail to collect or remit the relevant taxes are subject to sanctions.

SaaS providers may be eligible for some tax refunds or exceptions based on the type of services they provide and their adherence to Texas tax regulations.

 

Disregarding all the services that online or digital marketing has to offer, there are services classified as data processing or SaaS that have tax obligations within the state of Texas. The company Lead Finders among other organizations has to know these laws to be in compliance.

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