34 Tex. Admin. Code § 3.354 - Debt Collection Services
(a) Definitions.
The following words and terms, when used in this section, shall have the
following meanings, unless the context clearly indicates otherwise.
(1) Claim--Without limitation, any alleged
right, entitlement, or demand, whether for money or property, arising out of or
concerning any actual or alleged obligation, promise or indebtedness, howsoever
arising, whether in law or in equity, in contract or in tort, whether secured
or unsecured, actual or contingent, and whether liquidated or
unliquidated.
(2) Contingent
fee--An arrangement whereby a debt collector agrees, by contract or otherwise,
to accept as consideration for debt collection services a percentage of the
amount actually collected, whether inclusive or exclusive of actual expenses
incurred in performing such services.
(3) Debt--Any obligation to pay a sum certain
in money or other consideration.
(4) Debt collection service--Any activity
performed for consideration, to collect or adjust a delinquent debt, to collect
or adjust a claim, or to repossess property subject to a claim, including any
activity performed in furtherance of the satisfaction or compromise of a debt
or claim.
(5) Debt collector--Any
person performing debt collection services.
(6) Drawer--The payor who owns the account on
which a check is drawn.
(b) Responsibilities of debt collectors.
(1) Tax is due and must be collected on the
total charge for debt collection activities when:
(A) the last known address of the debtor in
the creditor's records at the time the account is placed for collection is in
Texas; and
(B) the creditor for
whom the debt is collected is located in Texas or is engaged in business in
Texas (as provided in Tax Code, §
151.107) at the time the
debt is referred for collection.
(2) Collection of current credit and real
estate accounts, including mortgage payments and rental payments, is not
subject to tax under this rule. A current credit or real estate transaction is
one that has not exceeded the later of the due date of the payment or the date
on which a penalty or other contractual sanction attaches. Late charges for
payment of mortgage payments are considered additional interest and not debt
collection charges. Mortgage reinstatement fees following forfeiture of a
mortgage are not considered debt collection charges.
(3) The drawer of a dishonored check is
responsible for paying the cost incurred to process a dishonored check
including the sales tax due on the debt collection service.
(4) Debt collectors must obtain a tax permit
and collect tax on the entire sales price of their service, or accept a
properly completed exemption certificate in lieu of collecting tax. See §
3.287 of this title (relating to
Exemption Certificates) and §
3.322 of this title (relating to
Exempt Organizations).
(5) If a
debt collector charges a contingent fee, the sales price is the amount actually
withheld by or remitted to the debt collector for the performance of such
services, including any amounts withheld or remitted for the purchase of
taxable items used or consumed in performing the service.
(c) Resale certificates.
(1) A debt collector may issue a resale
certificate in lieu of tax to a supplier of tangible personal property only if
care, custody, and control of the property is transferred to the client. For
example, a debt collector purchases magnetic tape to transfer the results of
debt collection services to customers. The tape is transferred to the customer,
and the customer owns and uses the tape to review the results of the service.
Taxpayer may purchase the tape tax free by issuing a resale certificate. Tax is
due on the total amount charged the customer, including amounts for the tape
and for the services.
(2) A resale
certificate may be issued for a service if the buyer intends to transfer the
service as an integral part of taxable services. A service will be considered
an integral part of a taxable service if the service purchased is essential to
the performance of the taxable service and without which the taxable service
could not be rendered.
(3) A resale
certificate may be issued for a taxable service if the buyer intends to
incorporate the service into tangible personal property which will be resold.
If the entire service is not incorporated into the tangible personal property,
it will be presumed the service is subject to tax and the service will only be
exempt to the extent the buyer can establish the portion of the service
actually incorporated into the tangible personal property. If the buyer does
not intend to incorporate the entire service into the tangible personal
property, no resale certificate may be issued, but credit may be claimed at the
time of sale of the tangible personal property to the extent the service was
actually incorporated into the tangible personal property.
(d) Nontaxable services.
(1) Activities undertaken by a debt collector
to determine whether a creditor has a claim are not taxable if the debt
collector determines not to attempt to collect or adjust the claim.
(2) Collection of court-ordered child support
or medical child support is not taxable.
(3) Services that are provided by a person
who acts as a trustee in connection with the foreclosure sale of real property
under a lien that is created by a mortgage, deed of trust, or security
instrument are not taxable.
(e) Unrelated services.
(1) A service will be considered as unrelated
if:
(A) it is not a debt collection service
nor a service taxed under other provisions of Tax Code, Chapter 151;
(B) it is of a type that is commonly provided
on a stand-alone basis; and
(C) the
performance of the unrelated service is distinct and identifiable. Examples of
an unrelated service that may be excluded from the tax base include charges for
consultation, training, or collection of current mortgage payments.
(2) If a combination of nontaxable
unrelated services and taxable debt collection services is performed under the
same contract, and the debt collection portion exceeds 5.0% of the overall
charge, then the parties to the contract must separately identify taxable and
nontaxable services along with the charges that apply to each, or else the
entire contract is presumed to be for debt collection and is taxable. If the
charge for the taxable portion of the services is not separately stated at the
time of the transaction, the service provider or the purchaser may later
establish for the comptroller, through the debt collector's books or other
documentary evidence, the percentage of the total charge that relates to
nontaxable unrelated services. Both parties must retain documentation that
clearly defines the work that is performed to show that, had the nontaxable
service and debt collection service been done independently, the charge for
each would reasonably approximate the amount allocated. The comptroller may
recalculate the charges if the allocation appears unreasonable and either party
may be held responsible for the additional tax, penalty, and interest on the
taxable services.
(3) Charges for
services or expenses directly related to and incurred while providing the
taxable service are taxable and may not be separated for the purpose of
excluding these charges from the tax base. Examples would be charges for meals,
telephone calls, hotel rooms, or airplane tickets.
(f) Service benefit location. If both the
creditor and the debtor are located in Texas, Texas tax is due.
(g) Service benefit location--multistate
customer.
(1) To the extent a debt collection
service is used to benefit a separate, identifiable segment of a creditor's
business (other than general administration or operation of the business) the
service is presumed to be used at the location where that part of the
creditor's business is conducted.
(2) To the extent the use of the service
cannot be assigned to an identifiable segment of a creditor's business, the
service is presumed to be used to support the administration or operation of
the creditor's business generally. The service is presumed to be used at the
creditor's principal place of business. The principal place of business means
the place from which the trade or business is directed or managed.
(3) If a multistate customer claims that part
of the debt collection service benefits the customer's business at locations
both within and outside the state, the customer must provide the debt
collection service provider with an exemption certificate in lieu of tax. It
will then be the customer's responsibility to report the tax to this office for
that portion of service that benefits Texas locations. The service will not be
taxable to the extent the customer can establish benefit outside Texas. A
multistate creditor may use any reasonable method for allocation which is
supported by business records.
(4)
A debt collector who accepts a certificate in good faith is relieved of
responsibility for collecting and remitting tax on transactions to which the
certificate relates.
(h)
Local taxes.
(1) Local sales tax. Local sales
taxes (city, county, transit authority, and special purpose district) apply to
debt collection services in the same way they apply to tangible personal
property. Generally, service providers must collect local sales taxes if their
place of business is within a local taxing jurisdiction, even if the service is
actually provided at a location outside that jurisdiction.
(A) Transit sales taxes do not apply to
services provided outside the boundaries of the transit area.
(B) In the case of multiple locations, if an
order for service is placed at one location but the service is provided at
another location, the place of business from which the service is provided will
determine to which local taxing entity the tax is allocated.
(2) Local use tax.
(A) If the service provider's place of
business is outside a local taxing jurisdiction but service is provided to a
customer within a local taxing jurisdiction, local use taxes apply and the
service provider is responsible for collecting the local use tax if the service
provider has representation in the local jurisdiction.
(B) If a customer of a service provider
located outside a local taxing jurisdiction claims that part of the debt
collection service benefits the customer's business in more than one local
taxing jurisdiction, the customer must provide the service provider with an
exemption certificate in lieu of use tax. (This claim may be asserted and the
exemption certificate issued only in situations where use tax is due and does
not apply when local sales tax is applicable.) The local use tax for each local
taxing jurisdiction to which the exemption certificate applies must be
reported, allocated, and paid by the customer. A debt collector who accepts in
good faith an exemption certificate claiming benefit in more than one local
taxing jurisdiction is relieved of responsibility for collecting and remitting
local use tax on transactions to which the certificate relates.
(3) References. For more
information on the collection and allocation of local sales and use taxes, see
§3.374 of this title (relating to Collection and Allocation of the City
Sales Tax), §3.375 of this title (relating to City Use Tax), §3.424
of this title (relating to Collection and Allocation of Transit Sales Tax), and
§3.425 of this title (relating to Transit Use Tax).
(i) A multistate creditor purchasing debt
collection services for the benefit of both in-state and out-of-state locations
is responsible for issuing an exemption certificate and for reporting and
paying local tax as provided by subsection (g) of this section.
(j) Use tax. If a debt collector is not
engaged in business in Texas or in a specific local taxing jurisdiction and is
not required to collect Texas tax, it is the Texas creditor's responsibility to
report and pay the state and local use tax to this office.
Notes
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