New state agency rule change would eliminate double tax for businesses, gig workers

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(The Center Square) – The Office of Texas Comptroller is amending an agency rule, 3.330, that it says was previously misused to create a double tax on businesses, gig workers and others.

Comptroller Don Huffines signed an executive order to direct the agency to publish a proposed amendment to Rule 3.330 to remove marketplace and platform fees from the definition of taxable data processing services.

Previously, the comptroller’s office applied an interpretation of Rule 3.330 to all businesses that the office now says the legislature only intended to apply to data processing services. When the state legislature created the data processing tax in 1987, it was intended to apply to “mainframes and data-entry workers entering paper invoices and receipts into a usable database – not for the apps and platforms Texans rely on today,” the office said. 

What small businesses and those in the gig economy have found is that the comptroller’s office has been collecting a data services tax on top of marketplace fees paid to online platforms. This includes a tax being paid on top of the fee a seller pays to platforms like Amazon, eBay or Etsy; that restaurants pay to DoorDash, Grubhub and Uber Eats to deliver food; or small businesses, individuals or families pay to list a short-term rental through online markets like VRBO or Airbnb.

The double tax has also impacted the gig economy, impacting ride-share drivers, dog walkers, and workers who run errands or provide furniture assembly services, the office found. 

“That tax was on top of the sales tax already charged, if applicable, on the purchase itself,” the comptroller’s office found. “In many cases, the result was that a business paid tax on the marketplace fee and the customer also paid tax on the item — the same transaction, taxed twice.”

The office says a new rule change ends taxes on marketplace fees tied to “sellers offering products on marketplace platforms like Amazon, eBay, and Etsy; prepared food and grocery delivery such as DoorDash, Grubhub, Uber Eats, and similar apps; short-term lodging; ride-hailing and other transportation services; vehicle rental or sharing; pet care and pet-sitting services; and household, personal, and errand-running services.”

The rule change came after small business owners were asked about ways to improve comptroller practices and how agency rules like 3.330 have impacted their businesses.

The feedback included businesses explaining that the tax on the fee “puts Texas sellers at a disadvantage against out-of-state competitors who don't pay it” and diverts money they would otherwise invest “into new equipment, new jobs, or growing their business.”

The proposed rule change is being filed with the Office of the Texas Secretary of State and published in the Texas Register, followed by a 30-day public comment period. Texans are encouraged to submit comments to the comptroller's office during that timeframe.

The office says it’s continuing to review how the data processing tax is interpreted and may propose additional changes in the future.