Ezel / Tax Rulings / TX
TX 9010L1057E08 Sales and/or Use Tax (State,Local,MTA) 1990-10-29

Were a debt collector's fees and the attorney fees it incurred to collect overdue accounts taxable in Texas?

Short answer: The debt collector's compensation was taxable, but attorney services were not taxable debt collection when the attorney fees were separately stated from other charges.

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

A creditor hired a debt collector, which sometimes retained an attorney. The attorney kept a percentage of amounts collected and sent the balance to the debt collector; the collector then retained its own 5% or 6% and remitted the rest to the creditor.

The creditor's payment to the debt collector was taxable consideration for debt-collection service.

The attorney's services were not taxable debt collection under Attorney General Opinion JM-823. Those fees remained nontaxable when separately stated from the collector's other charges.

What this means for you

Legal work did not lose its nontaxable treatment merely because it assisted a taxable collection engagement, but the invoice had to separate the attorney fee.

Common questions

Was the debt collector's retained fee taxable? Yes.

Were the attorney's services taxable debt collection? No.

What condition protected the attorney fees? They had to be separately stated.

Citations and references

  • Texas Attorney General Opinion JM-823

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 29, 1990

Dear ** :

You called about sales tax on debt collection services.

I understand the debt collector is hired to collect overdue accounts.
On some accounts the debt collector hires an attorney to proceed with
collection action. The attorney collects the past due amount, retains
a percentage of the amount collected, and sends the remainder to the
debt collector. The debt collector deducts 5 or 6 percent and sends
the rest to the creditor. The debt collector's invoices clearly re-
flect amounts paid to attorneys and amounts retained by the debt col-
lector.

The creditor has hired the debt collector to collect overdue debts.
The amount paid to the debt collector is consideration for this ser-
vice and it is taxable. The attorney's services are not taxable debt
collection services - see Attorney General's Opinion JM-823. These
fees are not taxable provided they are separated from other charges.

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) 512-474-0900]

Sincerely,
Adina Whittemore
Taxability
Legal Division

Get today's answer for your situation

You just read a 1990 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.