Is a service that signs homeowners up for accelerated mortgage payment drafting subject to Texas sales tax?

Subject

Mortgage Services For Homeowners (Brokerage Fees, Coupon Statement Book, Payments, Title Policy, Irs Forms Preparation)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402L1293F03

Plain-English Summary

The taxpayer planned to help homeowners pay off their mortgages faster by signing them up as an independent agent for Equity Corporation, a Florida company. Twice a month, Equity Corporation would deduct a specified amount from a homeowner's checking account and use it to make the homeowner's mortgage payment, making sure the extra amount was properly applied to principal. The taxpayer's own role was limited to receiving a fee for signing homeowners up for the service.

The Comptroller ruled that, based on these facts, this service is not a taxable service. The ruling is narrowly framed: it applies "if the only activities are Equity Corporation drafting the payments and [the taxpayer] signing homeowners up for this service." The Comptroller noted the opinion is based on the facts presented, and that additional or different facts could change the outcome.

What This Means For You

If you run or sell a mortgage-acceleration or payment-drafting service: Under this ruling's facts — bank drafting of payments plus enrolling customers, with no other services layered in — the activity was not treated as a taxable service in Texas. But this is a narrow, facts-specific letter from 1994, not a general exemption for the industry. If your service does more than draft payments and sign up customers (for example, activities like providing coupon books, statements, title policy work, or IRS forms preparation, as referenced in this letter's subject line), you should not assume the same result applies without your own ruling or advice.

If you're an independent agent earning a signup fee for this kind of arrangement: This letter suggests that merely receiving a fee for enrolling customers in a bank-drafted payment program was not, by itself, enough to make the service taxable — but only under the specific facts described to the Comptroller.

Q&A

Q: Was this mortgage payment drafting and enrollment service subject to Texas sales tax?
A: No. The Comptroller found that if the only activities are the payment-processing company drafting the payments and the taxpayer signing homeowners up for the service, the service is not taxable.

Q: Does this ruling mean all mortgage acceleration services are non-taxable in Texas?
A: Not necessarily. The Comptroller explicitly stated the opinion is based on the facts presented, and additional or different facts could change the result. This letter only covers the narrow combination of bank drafting plus signup activity described in the request.

Q: What was the taxpayer's specific role in this arrangement?
A: The taxpayer acted as an independent agent for Equity Corporation and received a fee for signing homeowners up for the service. Equity Corporation itself handled deducting funds from the homeowner's checking account twice a month and applying the extra payment to principal.

Original ruling text

February 2, 1994

Dear ***:

I have received your letter requesting an opinion on the
taxability of a service you will be performing.

Facts: You are planning to provide a service to homeowners.
This service will help homeowners pay off their mortgages
faster. You will be an independent agent for Equity
Corporation that is located in Florida. Equity Corporation
will deduct a specified amount from a homeowner's checking
account twice a month. Equity Corporation will then make the
homeowner's mortgage payment ensuring that extra principal
is properly applied. *** will receive a fee for
signing homeowners up for the service.

Response: If the only activities are Equity Corporation
drafting the payments and Systems signing homeowners up for
this service, this service is not a taxable service.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion could change.

If you have any questions, please don't hesitate to write
the Tax Administration Division or call one of our tax
specialists toll free at 1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division

NOTE: Previous Accession Number 9402192L