Is a credit/debt counseling service, where the provider advises clients on repairing credit, building a budget, and negotiating with creditors, taxable in Texas?

Plain-English summary

The Texas Comptroller's Tax Policy Division responded to a business that provides a credit counseling service. For a fee, the provider advises clients on how to solve their credit problems — including how to start, restart, or repair their credit — develops a budget for the client, and negotiates with the client's creditors to lower balances, interest, and payments on the client's existing debt.

The Comptroller's answer was direct: this service is not taxable. The letter goes on to note that if the provider had already remitted sales tax on this service, it could amend its sales tax returns and receive a refund of the taxes paid, following the refund procedure in Section (a) of Rule 3.325.

The letter also flags that this opinion is based on the facts presented, and that the opinion could change if there are any additional or different facts.

What this means for you

Credit and debt counseling businesses

If you provide a credit counseling service — advising clients on repairing or rebuilding credit, developing a budget, and negotiating with creditors on the client's behalf for a fee — this letter indicates that service is not subject to Texas sales tax.

Businesses that may have already charged or remitted tax on this service

If you collected and remitted sales tax on a credit counseling service like the one described here, this letter says you may amend your sales tax returns and seek a refund of the taxes paid, using the procedure in Section (a) of Rule 3.325.

Anyone relying on this letter

The letter itself cautions that the opinion is based on the facts presented to the Comptroller, and that additional or different facts could change the outcome. It's a fact-specific determination, not a blanket rule for every type of financial counseling or advisory service.

Common questions

Q: Is credit or debt counseling taxable as a sales tax service in Texas?
A: According to this letter, no — a service where the provider advises clients on repairing credit, builds a budget, and negotiates with creditors on the client's behalf is not taxable.

Q: What if I already paid sales tax on this type of service?
A: The letter states you may amend your sales tax returns and receive a refund, following the refund procedure found in Section (a) of Rule 3.325.

Q: Does this letter apply to any credit counseling business?
A: The letter is based on the specific facts presented by this taxpayer, and notes the opinion may change if the facts are different. STAR letters generally may be relied on only by the taxpayer to whom they were issued.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.325(a) (procedure for refunds of taxes paid to the state)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9509507L

Original ruling text

September 22, 1995

Dear *****:

Thank you for your recent letter requesting the taxability of your credit
counseling service. Evidently, your first letter did not reach this section. I
apologize for the delay in answering your questions and any conflicting
information you received.

As I understand it, you provide a credit consulting service. For a fee you
advise your clients on how to solve their credit problems. The advice includes
how to start, restart, or repair their credit. You also develop a budget for
your client and negotiate with the client's creditors to lower balances,
interest and payments on the client's existing debt.

The service you are providing is not taxable. If you have remitted tax on this
service, you may amend your sales tax returns and receive a refund of the taxes
paid. The procedures for receiving a refund of taxes paid to the state are
found in Section (a) of Rule 3.325.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division