Were bundled commercial-mortgage servicing activities taxable when debt collection was incidental and insurance work was limited to monitoring coverage?

Plain-English summary

The commercial mortgage servicer performed a broad package of work: monitoring property-insurance levels, answering borrower and lender questions, paying ad valorem taxes, escrowing funds for future tax and insurance payments, inspecting property, reviewing real-estate operating data, reporting property status, filing UCC statements, and reviewing leasing activity and new leases.

Those described services were not taxable.

Debt collection was infrequent, nonrecurring, and not separately charged. An occasional debt-collection service included in one charge remained nontaxable when it was less than 5% of the total charge.

Monitoring the level of insurance was not insurance service under Rule 3.355 because the company did not appraise property, conduct insurance inspections or investigations, calculate premiums, process or adjust claims, or perform loss-prevention services.

What this means for you

The historical result depended on debt collection being incidental and under the stated threshold, and on insurance work being limited to monitoring rather than performing the taxable insurance activities listed by the letter.

Common questions

Was the mortgage-servicing package taxable? No.

Could incidental debt collection remain nontaxable? Yes, when included in one charge and less than 5% of the total.

Was monitoring insurance coverage taxable insurance service? No, on the facts described.

Citations and references

• 34 Tex. Admin. Code Rule 3.354 — historical debt-collection-services rule.
• 34 Tex. Admin. Code Rule 3.355 — historical insurance-services rule.
• 34 Tex. Admin. Code Rules 3.342 and 3.343 — additional rules enclosed with the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0875G01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

January 25, 1988

Dear *:

Thank you for your letter concerning taxability of services provided by a
commercial mortgage banker and servicer of commercial mortgages as
outlined
below.

Specifically, our client conducts a typical mortgage banking
operation. Collection of its client mortgages is a very minor
portion of its servicing activities. Other functions performed
in servicing its client accounts include monitoring the level of
property insurance in force by the mortgagee, answering questions
and addressing issues raised by both the borrower and the lender,
payment of ad valorem taxes to taxing authorities, escrowing funds
from the mortgages for future tax insurance payments, conducting
physical site inspections of the mortgaged property, review of
financial operating data for operating real estate, reporting to
the lender as to the property's status and condition, filing UCC
statements for personal property with the applicable county clerk,
review of leasing activity and briefing of newly executed leases.

Our client provides only incidental debt collection services as
defined in Rule 3.354. An our client does not render an addi-
tional charge to its customers for debt collection services
since they are infrequent and non-recurring.

Our client does not provide insurance services to its customers as
defined in Rule 3.355. our client monitors or checks the level of
insurance maintained on properties subject to its service contracts.
Our client does not appraise property, conduct insurance inspections,
conduct insurance investigations, calculate insurance or annuity pre-
miums, process or adjust insurance claims, perform insurance loss
prevention services, etc.

Response: The services as described above are not taxable. An
occasional
debt collection service included in a single charge for the nontaxable
services would not be taxable so long as the debt collection service is
less than 5% of the total charge.

I am enclosing current Rules 3.342, 3.343, 3.354 and 3.355 for your
information.

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 our
toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may
write me
at the Tax Policy Division.

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