Ezel / Tax Rulings / TX
TX 8907L1026E13 Sales and/or Use Tax (State,Local,MTA) 1989-07-12

When did a lender-support service become taxable debt collection rather than nontaxable file review?

Short answer: Initial file review and comments were nontaxable when the lender contacted the borrower. The later phase became taxable when the company itself undertook collection efforts.

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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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

In the first phase, the company reviewed lender files to see whether borrowers had paid promised amounts, returned the files with comments, and let the lender send the collection request. The company received 25% of funds paid during that phase. The Comptroller said this was not debt-collection service and was nontaxable.

If the borrower did not respond, the lender returned the file to the company, which then performed collection work and received 50% of funds recovered through its efforts. That second phase was taxable debt-collection service.

Common questions

Was reviewing the file itself taxable debt collection? No, when the lender remained responsible for contacting the borrower.

When did the service become taxable? When the company itself took over collection efforts.

Did the contingent percentage alone decide the result? The letter distinguished the phases by who performed the collection activity, while also describing the different 25% and 50% compensation terms.

Source

Original ruling text

July 12, 1989

Dear **:

Thank you for your letter concerning the taxability of your services.

I understand that a lender will request COMPANY A to review files
to determine if these certain amounts promised by the borrower were
received by the lender. COMPANY A will review the file and return it
to the lender with comments. The lender will then mail a collection
request to the borrower. COMPANY A receives 25 percent of the funds
received during this time. This service is not a debt collection
services and is not taxable.

If no response is received in a given time, the file is returned to
COMPANY A for collection. COMPANY A receives 50% of funds received
as a result of their collection efforts. This service is a debt
collection service and 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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