Could a debt collector accept a Texas sales-tax exemption certificate from a bank holding notes formerly connected to the FDIC or FSLIC?

Plain-English summary

A collection company contracted with a bank to collect from debtors who had defaulted on notes. The bank had been formed from three failed savings and loan associations, and the notes had once been associated with the Federal Savings and Loan Insurance Corporation and possibly its successor, the Federal Deposit Insurance Corporation.

The supplied servicing agreement said the FSLIC had transferred all of its rights and interests in the notes to the bank. The Comptroller therefore concluded that the collection company's client was the bank, not the FDIC.

Sales tax on debt-collection services was due from the contracting client. Because the bank was not a governmental entity entitled to an exemption, the collection company could not accept its exemption certificate in good faith for those services.

What this means for you

A private entity did not inherit a federal agency's Texas sales-tax exemption merely because assets originated with a failed institution or federal receiver. The letter's result depended on the agreement transferring the notes and identifying the bank as the debt-collection client.

Common questions

Who was the client purchasing the debt-collection service? The bank.

Was the bank treated as a tax-exempt governmental entity? No.

Could the collector accept the bank's exemption certificate? No, not in good faith under the facts described.

Did the letter establish that the FDIC still owned the notes? No. It said the agreement indicated that the FSLIC had transferred all rights and interests to the bank.

Citations and references

The letter did not cite a statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9101L1067D03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller January 17, 1991

Dear ** :

Your letter was referred to me by Ms. Julie Pesl, of our Tax
Administration Division. You indicated in your letter that
CORP ABC (**) has entered into an agreement with the BANK
X ("***") to collect monies from debtors who have defaulted
on notes that are the assets of the Federal Deposit Insurance
Corporation ("FDIC"). BANK X was formed from three failed sav-
ings and loans associations.

According to the Collection servicing Agreement between CORP
ABC and BANK X, that you provided me, the Federal Savings and
Loan Insurance Corporation ("FSLIC") as receiver for these
failed institutions transferred "all its right, title and in-
terest in and to certain of the notes and liens and security
interests securing the same to BANK X..". Therefore, the FDIC,
while it may be a successor in interest to the FSLIC, would
not appear to have a right, title or interest in the notes
transferred to BANK X.

Sales tax on debt collection services is due from the client
contracting for the service. Your client in this transaction
is BANK X, not the FDIC. BANK X is not a governmental entity
entitled to exemption from sales tax on its purchases of taxa-
ble services. Therefore, CORP ABC cannot make a good faith
acceptance of an exemption certificate from BANK X on debt
collection services provided to BANK X.

In September of 1990, we requested that the FDIC and the Reso-
lution Trust Corporation ("RTC") provide us with copies of any
opinions of counsel or citations to legal authorities as to
why separate legal entities such as BANK X should be exempt
from taxation. Neither the FDIC or the RTC has responded to
our request.

This opinion is based on the facts presented. If there are dif-
ferent or additional facts, this opinion could change.

If you have further questions or need more information feel
free to call me at 1- 800- 531- 5441. The regular number is
(512) 475-0900. You may write me at Tax Administration Divi-
sion. [FAX (512) 475-0900)

Sincerely
Gilbert Zamora
Tax Administration Division