Texas Comptroller to end sales tax on medical information services

Texas Comptroller Don Huffines is on a mission to exempt certain data processing and information services currently subject to sales and use tax. In late September, he directed his agency to abolish the tax on marketplace fees. On October 6, 2026, he ordered his office to end the sales tax on medical records and healthcare technology systems. And more sales tax policy changes could be coming.

• Texas to end the sales tax on marketplace fees. On September 30, 2026, Comptroller Huffines directed his agency to propose an amendment to eliminate the data processing tax on fees that marketplace providers charge marketplace sellers. This will not affect the taxability of goods or services sold through marketplaces.
• Texas to end sales tax on electronic transfer of certain medical information. On October 6, 2026, Huffines directed his agency to propose an amendment to exempt charges for electronic health record systems and medical record systems, patient portals, and other healthcare technology systems used to maintain, access, or share medical records.
• More Texas sales tax changes could be coming. The comptroller’s office will continue to review how the information services and data processing taxes are interpreted and may propose additional changes in the future.

Huffines’ predecessor Glenn Hegar amended 34 Tex. Admin. Code §3.330 in 2025. Most provisions took effect April 2, 2025.

Amended 34 Tex. Admin. Code §3.330 expanded the definition of data processing, thereby increasing the number of services taxed as data processing services. It identified the following as taxable data processing services:

• Business accounting data production
• Data migration services
• Internet hosting if the user stores data on the service provider’s hardware or processes data on software that’s owned, licensed, or leased by the user or provider
• Payroll services
• The insertion of data into form title or loan documents for a client 
• Website creation, maintenance, and repair involving the compilation, entry, manipulation, storage, and entry of data
• Word processing

Additionally, as of October 1, 2025, marketplace provider services involving computerized entry, retrieval, search, compilation, manipulation, or storage of data or information provided by the purchaser or their designee are taxable data processing services. Marketplace sellers typically pay platforms for these services.

Amended rule 3.330 also gives examples of nontaxable data processing services. These include:

• The transcription of medical dictation by a medical transcriptionist
• “The compilation of nontaxable information primarily derived from the service provider’s laboratory, medical, or exploratory testing or experimentation or any similar method of direct scientific observation of physical phenomena as described by §3.342 of this title (relating to Information Services) … if the data processing is ancillary to the main service and the data processing does not have a separate value.” For example, “recording and tracking of vital signs in medical treatment.”

Hegar hoped the amendments would clarify how the 1987 sales tax law governing data processing services applies to services and technology developed after that date. He allowed ample time for the Legislature to intervene — to pass a law specifically exempting or taxing the enumerated data processing services — but the Legislature didn’t act.

In Hegar’s view, extending the 1987 data processing tax to many digital services that didn’t exist when the law was written was fair. His successor Don Huffines takes a different view.

Within a month of assuming the role of Texas Comptroller on August 1, 2026, Don Huffines invited physicians and other businesses to discuss the sales tax on data processing and information services. Those in the medical field reported being charged sales tax to access their patients’ electronic medical records.

“The previous comptroller treated certain medical records storage and related services as taxable data processing based on the statutory definition of “data processing service” in Tax Code § 151.0035, 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,’” explains Argi O’Leary, Principal, Advocacy Practice at Ryan, LLC. “Electronic medical records storage and related services could reasonably fall within one or more of the statutory examples of taxable data processing services, and the comptroller's position that those services were taxable was based on its interpretation of the statute.”

Huffines interprets the statute differently. In Executive Order DH-2026-02 (October 6, 2026), he directed the comptroller’s office to propose an amendment to Rule 3.342 so that the following services would no longer be taxed as information services or data processing services:

• Electronic health record (EHR) systems
• Electronic medical record (EMR) systems
• Patient portals
• Other healthcare technology systems used to maintain, access, or share medical records

Huffines previously ordered proposed amendments to eliminate the data processing sales tax on marketplace and platform fees; they can be found in the Texas Register. He plans to continue reviewing tax rules related to data processing services and information services and may propose additional changes to reduce the tax burden on businesses.

Tax experts tend to support the new comptroller’s stance.

“We're pleased to see Comptroller Huffines taking a proactive approach to tax administration by engaging with taxpayers, soliciting stakeholder feedback, and providing much-needed clarity on complex and frequently disputed tax issues,” says O’Leary.

“Good tax policy avoids taxing the same transaction twice” observes David Lingerfelt, Senior Director of Indirect Tax at Avalara. “The 2025 amendment to the Texas rule blurred that line by layering a data processing tax on top of commissions that were already baked into the taxable sales price. The comptroller’s proposed fix gets Texas back on solid ground.”

The proposed amendment to Section 3.342 will be published in the Texas Register, after which there will be a 30-day comment period. Avalara is monitoring this development and will promptly update our system taxability when the rule revision is finalized.

In the meantime, the taxability of services related to electronic health and medical record systems, patient portals, or other healthcare technology systems remains unchanged. Texas taxes 80% of charges for information services; 20% of the sales price of an information service is exempt. The same is true for data processing services.