Is Texas sales tax due on fees charged in the mortgage brokering business, such as loan origination fees, brokerage fees, servicing fees, late charges, title policy charges, attorneys' fees, or real property surveying charges?

Plain-English summary

A taxpayer in the mortgage brokering business wrote to the Comptroller's office asking whether sales tax applies to fees charged in that business, without specifying which particular fees. The Comptroller responded with a rundown of how the more common mortgage-related fees are treated.

Loan origination fees, equity origination fees, brokerage fees, late charges, prepayment fees, title policy charges, and attorneys' fees are all not taxable. Servicing fees are taxable only if the servicer is providing a debt collection service as defined in Rule 3.354; collecting current credit and real estate accounts, including mortgage payments, is not a taxable debt collection service, though some insurance-related services are taxable under Rule 3.355, and paying real estate taxes on the borrower's behalf is not taxable. Finally, surveying of real property — activities performed to determine or confirm property boundaries, or the location of structures or other improvements relative to those boundaries, using relevant elements of law, research, measurement, analysis, computation, mapping, and land description — is taxable.

What this means for you

Mortgage brokers and loan servicers

If you charge loan origination fees, equity origination fees, brokerage fees, late charges, prepayment fees, title policy charges, or attorneys' fees to your borrowers, those charges are not subject to Texas sales tax. If you also charge a separate servicing fee, check whether the underlying activity is a debt collection service under Rule 3.354 — simply collecting current mortgage payments is not taxable, but debt collection services beyond that, and some insurance-related services under Rule 3.355, can be taxable.

Businesses that survey real property in connection with a mortgage transaction

Charges for surveying real property to confirm boundaries or the location of improvements are taxable, even when performed as part of a mortgage closing.

Accountants and tax professionals

This letter is a useful checklist for classifying common mortgage-industry fees for Texas sales tax purposes, but it is based on the facts presented to the Comptroller and generic fee descriptions; confirm that your client's specific fee arrangement matches the fee types addressed here before relying on it.

Common questions

Q: Are loan origination fees subject to Texas sales tax?
A: No. Loan origination fees, equity origination fees, and brokerage fees are not taxable.

Q: Is a mortgage servicing fee taxable?
A: Only if the servicer is providing a taxable debt collection service as defined in Rule 3.354. Collecting current credit and real estate accounts, including mortgage payments, is not a taxable debt collection service. Some insurance services are taxable under Rule 3.355. Paying real estate taxes is not taxable.

Q: Are late charges or prepayment fees taxable?
A: No, neither late charges nor prepayment fees are taxable.

Q: Are title policy charges or attorneys' fees in a mortgage transaction taxable?
A: No, both are not taxable.

Q: Is surveying real property in connection with a mortgage transaction taxable?
A: Yes. Activities performed to determine or confirm property boundaries, or the location of structures or improvements relative to those boundaries, using relevant elements of law, research, measurement, analysis, computation, mapping, and land description, are taxable.

Citations and references

No specific statutes are cited in the text of this letter, though it references Comptroller Rule 3.354 (debt collection services) and Rule 3.355 (insurance services).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9409581L

Original ruling text

September 22, 1994

Dear **:

Thank you for your letter requesting information on whether sales taxes are
charged or collected on fees in the mortgage brokering business.

Your letter did not specify any particular fees to be addressed. However, I
have addressed the taxability of the more common mortgage related fees below:

• loan origination fees - not taxable
• equity origination fees -not taxable
• brokerage fees - not taxable
• servicing fees - if providing debt collection services as defined in Rule
  3.354, the charge for this service is taxable. Collection of current credit and
  real estate accounts, including mortgage payments, is not a taxable debt
  collection service. Some insurance services are taxable. Please refer to Rule
  3.355. Paying real estate taxes is not taxable.
• late charges - not taxable
• prepayment fees - not taxable
• title policy - not taxable
• attorneys fees - not taxable
• surveying of real property - Activities performed to determine or confirm the
  boundaries of real property, or to determine or confirm the location of
  structures or other improvements in relation to the boundaries of the property
  by the use of relevant elements of law, research, measurement, analysis,
  computation, mapping and land description are taxable.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The direct line
is 512/463-4502. You may also write to Tax Administration, Comptroller of
Public Accounts.

Sincerely,

Gilbert Zamora
Tax Administration Division