Ezel / Tax Rulings / TX
TX 8904L0934A01 Sales and/or Use Tax (State,Local,MTA) 1989-04-26

When was buying and collecting delinquent loans nontaxable rather than a taxable debt-collection service?

Short answer: The buyer had to give consideration for a true sale and the lender could not be required to repurchase uncollectible accounts.

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This page answers the general question as of 1989. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1989
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Buying and then collecting delinquent loans was not a taxable debt-collection service when the transfer was a true sale. The buyer had to give consideration for the accounts, and the contract could not require the lender to repurchase loans that proved uncollectible.

If the buyer paid only for loans it successfully collected, Texas would treat the arrangement as taxable debt collection rather than a loan purchase.

Common questions

Did acquiring the loan automatically make collection nontaxable? No. The acquisition had to be a genuine sale.

Could the lender be required to buy back uncollectible accounts? No.

What if payment depended on successful collection? The letter treated that as taxable debt collection.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

April 26, 1989

Dear ****:

I understand that loans will be assigned to ABC Company from lenders.
ABC Company will then take all available collection actions. If ABC
Company collects all or part of the loan, a portion of the payment is
sent to the lender. You have asked if this type of transaction is tax-
able as a debt collection service.

Purchasing delinquent loans is not a debt collection service if:

  • the transfer of the loans is a sale, i.e., ABC Company gives some
    "consideration" in exchange for the delinquent accounts, and

  • the contract with the lender does not provide for the
    lender's re-purchase of uncollectible accounts.

In other words, if ABC Company only pays for loans they collect, then
ABC Company is not buying loans, but is collecting debts and this ser-
vice is taxable.

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. The
toll-free number is 1-800-531-5441. The regular number is 512/463-4614.
Or you may write me at the Taxability Section of Legal Division. [(FAX)
512-475-0900]

Sincerely,
Adina Whittemore
Taxability Section
Legal Division

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