When a cable TV company hires a third party to collect past-due bills and to pick up converter boxes from delinquent accounts, are those third-party services taxable 'debt collection services'?

Plain-English summary

This is not a taxpayer-facing letter ruling — it is an internal February 4, 1993 memo from Eddie C. Washington (Tax Administration Division) to Steve Proper, answering a policy question about a large cable television company (about 250,000 subscribers statewide) that hires outside, third-party contractors to handle two jobs on delinquent accounts.

The first job is straightforward debt collection: the third party chases down past-due and discontinued accounts and is paid a percentage of whatever bad debt it collects.

The second job is different: the cable company gives subscribers a converter box as part of the monthly cable service, and when an account goes "bad" (delinquent), the same kind of third party is sent out to pick up the converter box. The third party is paid a flat fee per converter retrieved.

The memo asks, and answers, two questions:

1. Is the past-due account collection work a taxable "debt collection service"? Yes. Tax Code Section 151.0036 defines "debt collection service" to include "activity to collect or adjust a delinquent debt, to collect or adjust a claim, or to repossess property subject to a claim."
2. Is the converter-box pickup work also a taxable "debt collection service"? Yes, under that same statute — retrieving the converter box from a delinquent account is treated as repossessing property that is subject to a claim, performed for consideration (the flat fee paid per converter), so it falls within the same statutory definition.

What this means for you

Cable and utility companies using third-party collection agencies

If you pay an outside contractor to chase down delinquent accounts, that service is a taxable debt collection service under Section 151.0036, regardless of whether you pay a flat fee, a percentage of what's collected, or some other consideration.

Cable and utility companies whose equipment is picked up from delinquent accounts

Sending a third party to retrieve company-owned equipment (like a converter box) from a customer who is behind on payments is not treated as a separate, non-taxable "equipment pickup" service. This memo treats it as repossession of property subject to a claim — which is itself a form of debt collection service — so it is taxable on the same basis as the account-collection work.

Third-party collection and repossession service providers

If you are the contractor performing either of these jobs — collecting past-due accounts or retrieving equipment from delinquent customers — for a cable company or similar business, both types of work fall within the statutory definition of "debt collection service," whether you're paid a percentage of the debt collected or a flat fee per item repossessed.

Common questions

Q: Does it matter that the cable company is paying a flat per-item fee for converter retrieval instead of a percentage like it pays for debt collection?
A: No. The memo doesn't treat the fee structure as relevant to taxability — both the percentage-of-debt-collected fee for account collection and the flat fee per converter retrieved are treated as consideration for a taxable debt collection service.

Q: Why does picking up a piece of equipment count as "debt collection"?
A: Because Section 151.0036's definition of debt collection service isn't limited to chasing money — it expressly includes activity "to repossess property subject to a claim." The converter box is property the cable company has a claim to once the account goes delinquent, so retrieving it fits that part of the definition.

Q: Is this ruling something a taxpayer can rely on?
A: No. This is an internal Comptroller staff memo answering a policy question, not a taxpayer-specific letter ruling, so it does not carry letter-ruling reliance protection under 34 Tex. Admin. Code Rules 3.1 and 3.10.

Q: Would this analysis apply to other kinds of equipment retrieval from delinquent customers, not just cable converter boxes?
A: The memo only addresses cable television converter boxes specifically, but its reasoning — that repossessing company property from a delinquent account is repossession "of property subject to a claim" under Section 151.0036 — is not limited by its terms to converter boxes alone.

Citations and references

Statutes:

• Tex. Tax Code Section 151.0036 (definition of "debt collection service," including collecting/adjusting a delinquent debt or claim, and repossessing property subject to a claim)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1220D05

Original ruling text

DATE: February 4, 199

TO: Steve Proper, **

FROM: Eddie C. Washington, Tax Admin. Div. **

SUBJECT: Converter Box Retrieval by a Third Party

RE: **

Facts: ** (TP) provides cable television services to
approximately 250,000 subscribers throughout the State of Texas. Due to
TP's size and the large number of Texas outlets, TP utilizes third
parties to perform a variety of services. Among the many services
provided by third parties are "debt collection" (past due and
discontinued accounts) and converter retrieval services (converter boxes
are picked-up for "bad" accounts).

TP provides converters to their cable television subscribers as part of
the monthly cable television service.

TP pays the third parties a percentage of the bad debts collected and a
flat fee for each converter retrieved.

Question 1. Are the third parties providing debt collection services?

Answer: Yes. Texas Tax Code Section 151.0036 defines "debt collection
service" as "activity to collect or adjust a delinquent debt, to
collect or adjust claim, or to repossess property subject to a claim."

Question 2. Would the converter retrieval services performed by third
parties fall under debt collection services (repossession of property
subject to a claim performed for consideration)?

Answer: Yes, based on Section 151.0036 of the Texas Tax Code.