When did Texas consider the benefit of a credit-reporting service received in Texas?

Plain-English summary

A multistate credit-reporting company argued that tax should follow where a report was performed or received, not the consumer's residence. It quoted Texas Tax Code § 151.330(e) and described reports delivered to centralized credit offices outside Texas for applicants in Texas.

The Comptroller did not adopt that proposed test. Its reply said the agency's present opinion was that the benefit should be considered received in Texas when the credit applicant was in Texas, so long as the reporting company's customer was also doing business in Texas.

The attached request discussed debt collection too, but the reply did not decide that issue.

What this means for you

On this historical view, an out-of-state computer or credit office did not by itself keep the benefit outside Texas. A Texas applicant and a customer doing business in Texas were the stated conditions.

Common questions

Did Texas look only to where the report was transmitted? No.

What facts placed the benefit in Texas? A Texas credit applicant and a reporting customer also doing business in Texas.

Did the reply decide debt-collection sourcing? No.

Was the answer framed as permanent policy? No; it called the conclusion the agency's "present opinion."

Citations and references

• Texas Tax Code § 151.330(e) — quoted by the requester for an out-of-state-use exemption; the Comptroller's reply instead used a benefit-received test.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8709L0846B01

Original ruling text

Bob Bullock
Comptroller of Public Accounts
Austin, Texas 78774

September 14, 1987

Dear *:

Thank you for your letter of September 10, 1987, concerning the taxation
of credit reporting services in Texas.

I have circulated your letter to other members of our staff so they will
have the benefit of your thoughts concerning this question.

As you know from reading the recent amendment to the sales tax act,
services are taxable to the extent that a benefit is received in Texas.

While I understand your position, it is our present opinion the benefit
of services should be determined to be in Texas if the location of the
credit applicant is in Texas so long as the customer of the credit
reporting company is also doing business in Texas.

Sincerely,
Wade Anderson
Executive Counsel

September 10, 1987

Mr. Wade Anderson
Executive Counsel
Office of the Controller of Public Accounts
111 E. 17th Street
Austin, Texas 78774

RE: SALES TAX ON CREDIT REPORTING SERVICES

Dear Mr. Anderson:

I am the Vice-President and General Counsel of *
. is engaged in providing credit
reporting, debt collection and computer services to companies
throughout the United States. We operate credit bureau offices
and provide computer services to independently owned credit
bureaus. has customers and offices in Texas and
surrounding states. The headquarters and computer facilities are
in **, Illinois.

I would like to take this opportunity to express the position of
* regarding rules your office is in the process of
drafting that will interpret the new Texas Tax Code as it applies
to credit reporting and debt collection services.

To determine the applicability of the service tax, the nature of
the credit reporting business must be considered. The vast
majority of credit reporting in the United States is automated,
since most credit granting operations are automated. The local
credit bureau gathers public record information and provides it
to one of the national computer service vendors, and the computer
vendor in addition obtains information from credit grantors on a
national basis. Local credit bureaus that are automated provide
assistance to their local credit granting customers to access the
national data base, to understand and interpret the reports, and
to assure continued and efficient service. They clearly provide
a local service taxable by the Statute.

However, some national and regional creditors have centralized
credit granting and credit decision making activities.
Accordingly one of these creditors may, through a centralized
office, obtain credit reports on consumers who make applications
at its local outlets throughout the region or country. The
report will be obtained from one of the major computer service
companies directly without any contact with the state of the
consumer's residence.

* sells reports to banks and retailers in the State of
Texas on consumers who have made credit applications at their
local offices. The Texas office of encourages such
access and services such Texas customers. However, national and
regional retailers and banks may have credit centrals in states
other than Texas. When a consumer makes a credit application in
Texas, the credit may have the credit application processed at
its credit central in another state and the credit report is
accessed by that credit central office, from 's
*** computer.

In such circumstances, * automatically transmits the
report to the creditor's credit central, and no services are
performed in the State of Texas. No creditor is called on or
serviced in Texas, and no consumer report is ever sent by ***
to Texas.

The new Texas Tax Code, in Section 151.330e, provides that
"services performed for use outside this State are exempt from
the tax imposed by Subchapter C of this chapter." It is the
position of * that this exemption applies to the
situation described above, where the service is performed
entirely outside the State of Texas. If a credit grantor who
receives the credit report is located outside Texas, and the
credit bureau providing the credit report is outside of the State
of Texas, then no taxable service takes place in the State of
Texas.

I addition to conforming to the letter to the law, such an
interpretation is most fair to all companies in the credit
reporting business, whether they are in or out of Texas. If a
credit grantor is located in Texas and purchases a credit report,
a taxable service takes place in Texas regardless of the location
of the computer service company. If the credit grantor is not in
Texas and purchases a credit report, no taxable service takes
place in Texas, and in fact is specifically exempt by the
Statute, whether or not the computer service company is located
in Texas.

It has been suggested that the relevant criteria is the residence
of the consumer regardless of where the credit report is
purchased or service performed. That interpretation would exempt
credit reports purchased by Texas credit centrals on non Texas
consumers. The Statute clearly does not exempt such services
performed in the State.

In addition, consumers often move resulting in credit files which
have several addresses, possibly in different states, giving rise
to questions of allocation. Also, because of the nature of the
billing systems of all the computer service companies, a tax
based on the consumer's residence would require guesswork and
estimating and could not be implemented for some time. A tax
based on where the service is actually received can be easily
determined with accuracy.

I am not aware that any automated credit reporting vendor has a
billing system capable of distinguishing sales based on the
residence of the consumer. However, all invoices are mailed to
the customer, and all vendors can determine to where the reports
are transmitted. Accordingly, if the tax is based on where the
service is received, it can be applied immediately. No
estimating is required, and no billing systems need to be
changed. The tax would apply equally to all competitors in the
credit reporting business, and Texas would collect a tax
regardless of the residence of the consumer, when the creditor
receives the report in Texas.

The same rationale should apply to all types of credit reporting
services: Prescreening, check verification and authorization,
mortgage and commercial credit reporting, data processing
services and information service. The location of the receipt of
the service should determine the incidence of the tax.

* is also engaged in the debt collection business in
some locations. The tax law defines debt collection service as
an "activity to collect a debt or claim, to adjust a debt or
claim, or to repossess property subject to a claim." The
incidence of the tax is, according to the plain language of this
section, where the activity takes place. The consumer's
residence or the creditor's residence, or who gets a benefit are
unrelated to the location of the performance of the service. A
debtor can be located anywhere in the country. The debt
collection service is performed, however, at the place from which
phone calls are made or letters sent out, or where employees
perform a function. Logically, the tax should apply to
collection agencies located in Texas. The nexus is clear and the
amount of the tax can be easily determined.

To summarize, we respectfully request that any regulations of the
tax law relating to credit reporting and debt collection services
apply a logical rationale namely, the tax should be applied when
the service is performed or received in the State of Texas. I
would be pleased to discuss this matter further or provide
further detail as to the operation of our business at your
convenience. Please feel free to correspond or telephone me at
the above location.

Sincerely,