Are Website Development Services Taxable in Texas?

Are Website Development Services Taxable in Texas? In Texas, many website development and maintenance charges are taxable because the state treats a lot of “computer/tech” work as taxable data processing or software services. The tax base is often 80% of the charge (with a built-in 20% exemption), and normal state and local sales tax rates apply (up to 8.25%). The details matter, though—some tasks are taxable, others are not, and bundling can accidentally make everything taxable.

This guide explains what Texas taxes (and doesn’t) in a typical web project, how to invoice to minimize over‑taxing, rates and sourcing rules, exemptions, and common pitfalls.

Note: This article is for general informational purposes as of 2024–2025 and does not constitute legal or tax advice. Confirm specifics with the Texas Comptroller or your tax professional.

The Big Picture: Why Tech Work Is Often Taxable in Texas

Texas taxes:

• Tangible personal property (including software—canned and custom—and many digital deliveries), and
• Specific taxable services, including data processing and information services.

Website development frequently falls into “data processing” and/or taxable software because it uses computers to create, manipulate, or host electronic information and software. Texas also taxes access to software (SaaS) and web hosting as data processing.

There’s an important carve‑out: Texas allows a 20% exclusion from the taxable base for data processing and information services. Practically, that means you charge tax on 80% of the fee (the “Texas data processing services 80% rule”), if what you’re billing is a taxable data processing service.

What’s Taxable vs Not (Typical Web Project Lines)

Use this as a working framework; itemization and documentation are key.

Key takeaway: Separately state nontaxable consulting/training/strategy from taxable implementation, hosting, programming, and software so you don’t tax everything by accident.

The Bundling Rule (Where Many Projects Go Wrong)

If you bill a single lump‑sum for a package that mixes taxable and nontaxable services, Texas can treat the entire charge as taxable. The fix is simple:

• Itemize taxable and nontaxable lines.
• Describe them clearly (e.g., “SEO strategy workshop (nontaxable consulting),” “Monthly hosting (taxable data processing—80% tax base)”).
• If you include taxable data processing, apply tax to 80% of that line.

How Much Tax? Rates, Sourcing, and Proration

• State rate: 6.25%
• Local rates: Up to 2% more, for a maximum of 8.25% (Texas local sales tax rate 8.25%)

Sourcing for taxable services (including data processing):

• Generally sourced to the customer’s Texas location where the service is received/used. If your customer uses the service at multiple Texas sites, allocate.
• Multistate use proration: If the customer will use the data processing service partially outside Texas, they may claim/exempt the out‑of‑state portion with proper documentation. Work with your CPA if this applies.

Invoicing Examples (So You Tax Only What You Should)

Example A: New site build

• Discovery & UX workshop — $2,000 (nontaxable consulting)
• UI design concepts — $1,800 (nontaxable design service)
• WordPress theme development — $6,000 (taxable data processing; tax 80% of line)
• Analytics setup & goal tracking — $600 (taxable data processing; tax 80%)

Taxed subtotal = 80% of $6,600 = $5,280 → apply local rate based on customer location.

Example B: Monthly retainer

• Hosting & security monitoring — $150 (taxable data processing; tax 80%)
• Content updates (up to 2 hrs) — $200 (taxable data processing; tax 80%)
• SEO strategy call — $150 (nontaxable consulting)

Only the hosting and content updates are taxed on 80% of those amounts.

Example C: Mixed media deliverables

• Brand strategy doc — $1,200 (nontaxable)
• Website copywriting — $900 (nontaxable service)
• Product photography (digital delivery) — $1,100 (taxable in Texas)
• Web coding (landing page) — $1,500 (taxable data processing; tax 80%)

Special Situations You’ll See

• Custom vs canned software: Texas taxes both. Delivering a custom site or theme as software is still taxable.
• Information services: Certain “information services” are taxable (also with an 80% tax base), but general marketing advice isn’t. If you sell data/reports as a product, talk to your CPA about classification.
• Resale: Agencies can buy taxable inputs for resale (e.g., plugins/licenses) tax‑free with a resale certificate if they collect tax when billing the client for those taxable items.
• Exempt customers: Valid exemption certificate = no tax on qualifying sales (e.g., certain nonprofits, government). Keep the certificate on file.
• Out‑of‑state clients: If the client doesn’t receive/use the taxable service in Texas, Texas sales tax generally doesn’t apply. Nexus and destination state rules may still matter—coordinate with your tax advisor.

Compliance Checklist (Agencies)

• Register for a Texas sales tax permit before billing taxable services.
• Map your services:
  • Taxable: hosting, coding, maintenance, software/SaaS, photography, analytics implementation
  • Nontaxable: strategy, UX research, training (when separately stated)
• Update proposals and invoices to itemize lines and mark taxability.
• Apply the 80% tax base to taxable data processing/information services.
• Source tax to the customer location; handle local rates correctly.
• Collect and retain exemption/resale certificates when applicable.
• File returns on time; keep project docs and invoices organized.

Common Mistakes (and How to Avoid Them)

• Bundling taxable and nontaxable work into one line item → Itemize every project.
• Forgetting the 80% rule for data processing → Configure your invoicing system to tax 80% of qualifying lines.
• Not taxing hosting or maintenance → Treat both as taxable data processing.
• Over‑taxing pure consulting/training → Keep these separately stated and flagged as nontaxable.
• Ignoring multistate use → If relevant, document and prorate out‑of‑state usage.

FAQs

Are website development services taxable in Texas?

Often yes. Texas generally treats programming, implementation, updates, hosting, and SaaS as taxable (data processing/software). The “Texas data processing tax” base is usually 80% of the charge. Pure consulting/training can be nontaxable if separately stated.

Is web design taxable in Texas?

Design as consulting (concepts, UX, strategy) can be nontaxable. When design work is delivered as software/implementation (coded pages, files installed on a server), it typically becomes taxable. Itemize to avoid taxing the whole project.

Are SEO services taxable in Texas?

Strategy, audits, and advisory are generally nontaxable. Hands‑on implementation that edits site data or deploys tools is typically taxable as data processing (80% base).

Is web hosting taxable in Texas?

Yes. Texas sales tax on web hosting applies as a data processing service (80% taxable base).

Do I charge tax on domain registration?

Often yes when you sell it as part of a taxable data processing/hosting bundle. Itemize registrar pass‑throughs and apply tax according to your CPA’s guidance.

What sales tax rate should I use?

Apply the state 6.25% plus applicable local tax up to 8.25%, sourced to your customer’s Texas location of use/receipt.

Can I exclude out‑of‑state usage?

Potentially. With proper documentation, customers can prorate data processing used outside Texas. Coordinate with your CPA.