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Overview

Through a thorough evaluation of our client’s business operations and a detailed presentation to the State of Texas, Altus reduced a six-figure sales & use tax assessment to $0.00.

 

 

Challenge

Our client, an Independent Sales Organization (ISO), develops and markets bankcard and other merchant programs. Since the rise of the Internet and online sales, the ability of a merchant to accept credit cards as a form of payment through a merchant account is essential to the conduct of business. ISOs serve an important role for many businesses that may be considered “high risk” and for whom obtaining merchant accounts directly from a bank may be challenging.  Because ISOs operate independently of the banks they serve, they are able to offer merchant accounts to businesses with higher risk factors that the banks would accept of a direct merchant accountholder.  In this role, ISOs act as brokers, recruiting merchants who wish to accept credit card or point of sales transactions and qualifying them for merchant programs offered by the banks with whom it has contracted.  Some ISOs are also Merchant Service Providers (MSPs). MSPs provide financial transaction processing services.  While our client is not itself an MSP, it contracts with an unrelated third party for the provision of such services.

Texas law subjects many forms of data manipulation and transactional services to sales & use tax under its Data Processing Law. In this instance, the State reached the conclusion that our client, who purchased the services of an MSP in the provision of its own development and marketing programs, was reselling the services to its clients.  The result of this inaccurate conclusion was a six-figure sales & use tax assessment.

 

Solution

Once engaged by the ISO, we quickly gathered as much information, both verbally and in writing, to fully understand what services our client provided, how they provided the services, and what they consumed in the provision of their services.  With that knowledge, we reviewed hundreds of Comptroller rulings and Texas court cases to ascertain whether the State had addressed a fact pattern analogous to our client’s.  In fact, only one such ruling contained a fact pattern that nearly mirrored our client’s business model. And, in that ruling, the Comptroller found the Taxpayer’s services to be nontaxable.

 

 

Result

We quickly drafted a comprehensive memo for the Comptroller that discussed the client’s business model in thorough detail and focused upon similarities between that model and the business discussed in the aforementioned ruling. With the similarities between the two Taxpayers enumerated, and our thorough explanation of the client’s business model, that the State reversed its decision and vacated the assessment in full.  Once again proving that knowing our clients’ businesses is the key to serving them.

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