Did Texas sales tax apply when Kansas bought debt-collection services for Kansas tax debts owed by people or businesses in Texas?

Plain-English summary

Kansas contracted with a collection company that sometimes collected Kansas taxes from people or businesses residing in Texas. The Texas Comptroller agreed that Kansas was not doing business in Texas as defined by Section 151.107 and therefore was exempt from Texas sales tax on the debt-collection services.

The Comptroller said Kansas could issue an exemption stating that it was not “engaged in business in Texas.”

The attached Kansas request explained its reading of former Rule 3.354: even though the debtors had Texas addresses, the customer for the collection service—Kansas—was located and did business in Kansas. The Comptroller's response expressly agreed with the not-doing-business conclusion.

What this means for you

This was a fact-specific interstate-service conclusion, not a blanket governmental exemption. The operative fact identified by the Comptroller was that Kansas was not doing business in Texas under Section 151.107.

Common questions

Did Texas tax the collection services bought by Kansas? No.

Did it matter that some debtors lived in Texas? The attached request disclosed that fact, but the Comptroller still agreed Kansas was exempt because Kansas was not doing business in Texas.

What exemption statement could Kansas give? That Kansas was not engaged in business in Texas.

Citations and references

• Texas Tax Code § 151.107, cited in the Comptroller's response for the meaning of doing business in Texas.
• Former 34 Tex. Admin. Code Rule 3.354, discussed in Kansas's attached request concerning debt-collection services.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8805L0903F01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller May 10, 1988

Kansas Department of Revenue
Robert B. Docking State Office Bldg.
Box 12007
Topeka, Kansas 66612-2007

Dear ***:

Thank you for your letter regarding debt collection services.

I have reviewed your letter and agree the "State of Kansas is not doing
business in Texas" as defined Sec. 151.107 of Texas Sales Tax Statute
therefore, you are exempt from sale tax on debt collection services.

You may issue an exemption stating that Kansas is not "engaged in
business
in Texas."

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,
Adina Whittemore
Tax Policy Division

KANSAS DEPARTMENT OF REVENUE
DIVISION OF COLLECTIONS
Robert B. Docking State Office Building
Box 12007
Topeka, Kansas 66612-2007

April 15, 1988

Texas Department of Revenue
Attn: Adina Whittemore
P. 0. Box 13528
Austin, TX 78711

RE: Texas Sales Tax
Collection Services
Subsection 3.354

Dear Adina:

This letter is a follow-up to our phone conversation dated April 13,
1988.

The state of Kansas currently is contracted with a debt collection
company who,
from time to time, has the opportunity to collect Kansas taxes from
persons or
businesses residing in Texas. It is my understanding from reading
Subsection
3.354 and visiting with you and Mr. Van Allen that the various services
rendered
by the State of Kansas' contracting debt collection agency would not be
subject
to Texas sales tax.

This interpretation is based on Subsection 3.354 (b) (1) (A) and (B)
wherein
Texas tax is due when the address of the debtor at the time the account
is placed
for collection is in Texas and the seller (in our case the state of
Kansas) of
the service or tangible personal property or other transaction (taxes)
from which
the debt arose is located in Texas or is doing business in Texas. It is
my
understanding that the term "seller" does not indicate the debt
collection
agency, but instead the debt collection agency's customer.

This interpretation would appear to be supported by subsections (f) and
(g) of
3.354 since these subsections require either both the seller (the debt
collection
agency) and the customer (Kansas) to be located in Texas, or in the event
of a
multistate customer, to the extent that a debt collection service is used
to
benefit a separate, identifiable segment of a customer's (Kansas')
business
(other than the general administration or operation of the business) the
service
is presumed to be used at the location where that part of the business is
conducted (in Kansas).

Since Kansas' "business" is sited in Kansas, Kansas is not located in
Texas and
Kansas is not "doing business" in Texas, it would appear that the state
of Kansas
falls outside the scope of Subsection 3.354.

At your earliest convenience, I would request that you confirm by way of
letter
my interpretation of the Texas law and our conversation in regard to debt
collection services and Texas sales tax. Furthermore, since, like
Kansas, Texas
does not recognize a general exemption for state or municipal exemptions
other
than for Texas and Texas municipalities, I would request that a portion
of your
letter indicate as such. I ask this because our debt collecting agency
is
requesting some form of exemption certificate, which Kansas cannot
clearly give.

You may direct your response to my attention at the above styled address.
I
enjoyed visiting with you about this matter, and look forward to your
reply. If
at anytime in the future I may be of assistance to either you or the
Texas
Department of Revenue, please do not hesitate to contact me. Thanking
you in
advance for your cooperation.

Sincerely,

Attorney/Tax Specialist
Collections Legal Bureau
Telephone ***