Were an attorney's judgment-collection and other debt-collection charges taxable while Texas awaited an Attorney General opinion on attorney services?

Plain-English summary

An attorney's activities in collecting a judgment were not treated as debt-collection services when the attorney had represented the client in the lawsuit that produced the judgment.

The Comptroller was still waiting for an Attorney General opinion on whether other attorney services were taxable. The letter therefore said it was impossible to identify which other client charges, if any, were taxable. It suggested that work identical to a non-attorney debt collector's work might be taxable and that collecting tax could be prudent, but it expressly recognized that the forthcoming opinion could reach the opposite conclusion.

Until the opinion issued, the agency said its rule did not specifically address attorneys and no attempt would be made to require them to collect tax. The letter also expressed an expectation, not a settled policy, that the office would not collect tax retroactively for the period before the opinion.

What this means for you

This letter contains one narrow conclusion and substantial unresolved discussion. It should not be read as a final holding that all attorney collection or claim-settlement work was taxable or exempt.

Common questions

Was collecting a judgment always a taxable debt-collection service? No, not when the attorney represented the client in the suit from which the judgment arose.

Did the letter decide other attorney debt-collection charges? No.

Did it decide the taxability of the attorney's other claim-settlement work? No specific conclusion appears in the body.

Would Texas require attorneys to collect tax before the Attorney General opinion? The letter said no attempt would be made until the opinion issued.

Citations and references

• No statute, numbered administrative rule, or numbered Attorney General opinion is cited in the letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0846B08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 3, 1987

Dear ***:

Thank you for your recent letter concerning taxability of debt collection
services in your attorney practice.

You stated that your business activities encompass informing debtors of
their
legal obligation, preparing for and filing legal action. You also state
that
you obtain judgements and make judgement collections. The judgement
which
reflects the amount of fees due as a result of your service may be paid
by
the debtor prior to final judgement. Additionally, you state that from
time
to time you collect other claims for clients or settle other claims.

Activities that you perform in collecting a judgment are not "debt
collection" services if you represented the person in the suit from which
the
judgment arose.

We are awaiting the Attorney General's opinion as to whether certain
services
performed by attorneys are subject to tax. We have advised attorneys
calling
this office that our rule does not specifically address attorneys and no
attempt will be made to require attorneys to collect tax on their
services
until an opinion is issued by the Attorney General.

Since we do not know how the opinion will be written, it is impossible
for us
to advise attorneys what if any charges they make to clients are taxable.
Common sense would seem to dictate that if an attorney was doing what a
non-attorney debt collector does, the charges would be taxable. However,
the
Attorney General could issue an opinion which found this was not subject
to
tax. It would seem prudent for an attorney to collect tax if the
services
rendered were the same as those provided by debt collectors.

Regarding the collection of tax on transactions occurring after October 1
but
before the Attorney General opinion is issued, there is no policy on this
since we have not seen the opinion. Mr. Bullock has generally not tried
to
collect tax from taxpayers where they could not know what tax to collect.
If
the Attorney General was of the opinion certain fees were taxable, I
would be
very surprised if our office would attempt to collect taxes before the
ruling
was issued.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy Division