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Ezel / Tax Rulings / TX
TX 8711L0850D09 Sales and/or Use Tax (State,Local,MTA) 1987-11-16

Which fees earned by a commercial mortgage banker and servicer were taxable, including origination, brokerage, servicing, late, and prepayment fees?

Short answer: Loan and equity origination, brokerage, late, and prepayment fees were not taxable. Servicing was taxable only when it was taxable debt collection; collecting current mortgage payments and paying real estate taxes were not taxable debt collection services.

Apply this to your situation

This page answers the general question as of 1987. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1987
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a taxpayer-specific November 1987 Texas Comptroller letter about a commercial mortgage banker and servicer that sometimes brokered real-estate sales. It says the response depends on the provided descriptions and may change if the facts differ. The debt-collection and insurance-service classifications are historical and may have changed substantially; verify current Rules 3.354 and 3.355 and the actual servicing tasks. The STAR caption names coupon books, title policies, and IRS forms, but the body does not separately decide those items. STAR documents may no longer represent current policy even when not marked superseded. Identities are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Loan-origination fees, equity-origination fees, real-estate brokerage fees, late charges, and prepayment fees were not taxable.

Mortgage servicing was taxable only to the extent the client provided taxable debt-collection services under Rule 3.354. Collecting current credit and real-estate accounts, including mortgage payments, was not taxable debt collection. Paying real-estate taxes was also not taxable. The letter separately warned that some insurance services were taxable under Rule 3.355.

What this means for you

The historical result depended on the actual activity behind a servicing fee, not the label alone. Current-account collection differed from debt collection, and insurance-related work required a separate analysis.

Common questions

Were loan-origination and brokerage fees taxable? No.

Were current mortgage-payment collection services taxable debt collection? No.

Could a servicing fee be taxable? Yes, if it paid for taxable debt collection or taxable insurance services.

Does the body decide coupon books, title policies, or IRS-form preparation? No.

Citations and references

  • 34 Tex. Admin. Code Rule 3.354 (debt collection services)
  • 34 Tex. Admin. Code Rule 3.355 (insurance services)

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 16, 1987

Dear *:

Thank you for your letter concerning taxability of various services
provided
by a client.

You state that the client is a commercial mortgage banker and servicer of
commercial mortgages. The client also occasionally acts as a real estate
broker in transactions involving the sale of real estate.

You asked about taxability of the following income categories. The
response
is based on the description provided.

  • loan origination fees - not taxable

  • equity origination fees - not taxable

  • brokerage fees - not taxable

  • servicing fees - if your client is providing debt collection services
    as
    defined in Rule 3.354, enclosed, 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.

o late charges - not taxable

o prepayment fees - not taxable

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy Division

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