In an effort to curb the Texas Comptroller’s recent expansion of the tax imposed on data processing services, the Texas legislature has specifically excluded payment processing services from sales and use tax. Texas taxes data processing services, which includes “word processing, data entry, data retrieval, data search, information compilation, payroll and business accounting data production . . . and other computerized data and information storage or manipulation.” Tex. Tax Code § 151.0035. The Texas Comptroller has traditionally excluded merchant credit/debit card processing from the definition of “data processing services” but has recently begun questioning this exclusion according to the Sponsor’s Statement of Intent. The Comptroller’s change in policy to subject payment processors to tax could have resulted in “Texas businesses paying hundreds of millions of dollars in additional taxes each year.” On June 14, 2021, Texas Governor Greg Abbott signed S.B. 153, which specifically excludes from the tax on data processing certain payment processing services, such as (i) “services exclusively to encrypt electronic payment information for acceptance onto a payment card network”, or (ii) settling an electronic payment transaction by a downstream payment processor, a point of sale payment processor, a taxpayer in the business of money transmission, a federally insured financial institution, and a payment card network.
