Is a business that brokers debt instruments (mortgages, business notes, accounts receivable) subject to Texas sales tax?

Plain-English summary

Someone starting a business that brokers debt instruments — connecting sellers and buyers of seller-financed mortgages, deeds, accounts receivable, business notes, and bad debt portfolios — e-mailed the Comptroller after a Comptroller enforcement officer suggested getting written confirmation that the business would be nontaxable.

The Comptroller confirmed it: brokering mortgages, deeds to real property, business notes, bad debts, and similar income streams is not subject to Texas sales tax. The letter draws a line for a different scenario, though — if the taxpayer instead brokers tangible personal property or other taxable items (rather than debt instruments), Rule 3.311 concerning Auctioneers, Brokers, and Factors would come into play and could create tax obligations.

What this means for you

Businesses brokering mortgages, notes, or other debt instruments

Connecting buyers and sellers of seller-financed mortgages, deeds, accounts receivable, business notes, and bad debt portfolios is not a taxable service in Texas — you don't need a sales tax permit or need to collect sales tax on your brokering fee for this specific activity.

Brokers of tangible personal property or other taxable items

Don't assume all brokering is automatically nontaxable. If what you're brokering is tangible personal property or another taxable item rather than a debt instrument, check Rule 3.311 (Auctioneers, Brokers, and Factors) — that's a different tax analysis than the one in this letter.

Accountants and tax professionals

This letter is a useful, narrow confirmation limited to debt-instrument brokering; don't extend it to brokering of goods or other taxable items without separately checking Rule 3.311.

Common questions

Q: Is brokering seller-financed mortgages or business notes taxable in Texas?
A: No — brokering debt instruments like mortgages, deeds, accounts receivable, business notes, and bad debt portfolios is not subject to sales tax.

Q: What if I broker tangible personal property instead?
A: That's a different analysis — review Rule 3.311 (Auctioneers, Brokers, and Factors), which can impose tax obligations on brokers of taxable items.

Q: Can any debt-brokering business rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.311 (Auctioneers, Brokers, and Factors) — referenced as the relevant rule for brokers of tangible personal property/taxable items, distinguished from this taxpayer's debt-instrument brokering

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200009696L

Original ruling text

September 14, 2000

From: Emilio Lerma
To:
Subject: tax letter request

Dear **:

I am responding to your e-mail inquiry regarding the taxability of your
brokering service.

You state that your business is brokering debt instruments. You bring together
buyers and sellers of financed mortgages, deeds, account receivables, business
notes, bad debt portfolios and various other income streams. You would like to
confirm that the service you are providing is not taxable.

The brokering of mortgages, deeds to real property, business notes, bad debts
and various other income streams are not subject to sales tax. You may wish to
review Rule 3.311 concerning Auctioneers, Brokers, and Factors if you broker
tangible personal property or other taxable items.

To view or down load Rule 3.311, please go to our web site address at
and scroll
to the specific rule.

This opinion is rendered based on the facts presented. Other facts though
similar, may yield different results.

If you have any questions or require additional information, you may submit
inquiries to our tax help Internet address at , call
1-800-531-5441, extension 6-5809 or write to Tax Policy Division, Post Office
Box 13825, Austin, Texas 78711-3825.

Sincerely

Emilio S. Lerma
Tax Policy Division

I have been told the business I am setting up is non taxable. The business is
brokering debt instruments, consumer and business. This a service that will
connect people or businesses interested in selling seller financed
mortgages/deeds, accounts receivables, business notes, bad debt portfolios, and
various other income streams. My job is to connect the seller(s) to the buyers.
Eulundia Shepeard, an enforcement officer of the Texas Comptrollers office here
in ** instructed me to contact your office and have a letter
confirming this to be a non taxable business sent to my address.

Thank you for your help in this matter.

Regards,