Was a one-time $25 administrative fee to transfer residential HVAC repair contracts after a company's bankruptcy subject to Texas sales tax?

Plain-English summary

A dealer sold extended repair contracts for residential central heating and air-conditioning units. After another company involved with the contracts entered bankruptcy, a replacement company agreed to perform the covered repairs.

The dealer had to pay or collect a one-time $25 administrative fee for each contract transferred to the replacement company. The Comptroller said that transfer fee was not taxable.

What this means for you

The answer covered the one-time administrative transfer fee, not charges for later HVAC repairs or the original service contract itself.

Common questions

Was the $25 transfer fee taxable? No. Why was it charged? To move each repair contract to the replacement service company after bankruptcy. Did the letter classify repair charges? No.

Citations and references

• The letter does not identify a numbered 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/9111L1142A11

Original ruling text

November 12, 1991

Dear **:

Thank you for your letter concerning the $25 fee charged by COMPANY ABC
for transferring service contracts "from COMPANY DEF (which went bankrupt)
to CORP X."

According to information provided by *in our telephone conversation
November 4, your company installs central heating and air conditioning
units in residential property. COMPANY M is a dealer for COMPANY ABC.
It sells a repair contract to customers to cover the units beyond the
original manufacturer's warranty. COMPANY DEF (no other identification
was provided) originally purchased these contracts from COMPANY ABC.

COMPANY DEF is now bankrupt and CORP X has agreed to perform repairs
covered under the old CORP X contracts. The dealer must pay or collect
a one-time administrative fee of $25 for each contract that it wants to
transfer to CORP X.

Based on the information provided, the $25 transfer fee is not taxable.
This opinion is based on the facts that you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional questions.
You may write me, call toll free, 1-800-252-5555, ext. 34685, from
anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Administration Division