Texas Letter Ruling 9211L1209A07: Are towing charges taxable when a vehicle is repossessed?

Plain-English summary

This 1992 letter from the Texas Comptroller's Tax Administration Division clarifies how sales tax applies to towing charges in vehicle repossession situations, because the agency had "recently been made aware of some differences of opinion" on the topic. The letter lays out three scenarios:

1. Repossession company hired directly by a lender, vehicle not already in the lender's possession: All charges the repossession company bills the financial institution — including towing charges, even if separately stated — are taxable as a debt collection service.
2. Lender already has the vehicle and calls a towing company directly: The towing company's charge to the lender is not taxable.
3. Repossession company hires a towing company to move a vehicle it has already repossessed: The towing company's charge to the repossession company is not taxable, and the towing company does not need a resale certificate from the repossession company to support that. However, the repossession company's total charge to the financial institution — including the cost of the tow — remains taxable as a debt collection service.

In short, the taxability turns on whether the charge is for the debt-collection/repossession service itself (taxable) versus a straightforward vehicle-moving service billed directly to a party that already has possession of the vehicle (not taxable).

What this means for you

Repossession companies

Your total charge to the financial institution for repossessing and moving a vehicle is taxable as a debt collection service, even if you break out a separate line item for towing. You can hire a towing company to move a repossessed vehicle without paying tax on that towing charge yourselves, and the towing company doesn't need a resale certificate from you to treat that charge as non-taxable.

Towing companies

If you're hired by a repossession company to move a vehicle that has already been repossessed, your charge to the repossession company is not taxable — and you are not required to obtain a resale certificate to support that. But if you're hired directly by a financial institution that already has possession of the vehicle, your charge to the lender is also not taxable. The distinction that matters is who already has the vehicle and who is hiring you, not whether you separately state the towing charge.

Financial institutions / lenders

If you hire a repossession company to recover a vehicle, expect the entire bill — repossession plus any towing — to be taxable as a debt collection service. If you already have possession of the vehicle yourself and just need it moved, a towing company's charge to you for that move is not taxable.

Accountants and tax professionals

The key fact pattern to identify is possession: whether the financial institution already has "access to and possession of" the vehicle before a towing company is called determines whether that towing charge is taxable. Where a repossession company is involved, its full charge to the lender is taxable as a debt collection service regardless of how the repossession company itself sources the towing (and no resale certificate flows between the towing company and repossession company).

Common questions

Q: Is a towing charge taxable if it's separately stated on the repossession company's invoice to the lender?
A: No — separately stating the towing charge doesn't matter. The letter says "all charges by the repossession company to the financial institution are taxable as a debt collection service. This includes towing charges, even if separately stated."

Q: Does a towing company need a resale certificate from a repossession company it works for?
A: No. The letter states "the towing company is not required to obtain a resale certificate from the repossession company" for its charge to the repossession company to be treated as not taxable.

Q: If a lender already has the repossessed vehicle and just needs it moved, is the towing charge taxable?
A: No. In that scenario, "towing charges by the towing company are not taxable," according to the letter.

Q: Who ultimately owes tax on the transaction — the repossession company or the financial institution?
A: The financial institution ultimately bears the tax, since the repossession company's total charge to the lender (including any towing cost passed through) is taxable as a debt collection service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1209A07

Original ruling text

November 24, 1992

Dear ****:

We have recently been made aware of some differences of opinion concerning our
tax policy on vehicle towing and repossession charges.

When a repossession company is hired by a financial institution to repossess a
vehicle, and the vehicle is not already in the possession of the financial
institution's employees, all charges by the repossession company to the
financial institution are taxable as a debt collection service. This includes
towing charges, even if separately stated.

In cases in which the financial institution already has access to and
possession of the vehicle and then calls a towing company to move the vehicle,
towing charges by the towing company are not taxable.

When a repossession company hires a towing company to move the vehicle after
repossession, the towing charges to the repossession company are not taxable.
The towing company is not required to obtain a resale certificate from the
repossession company. However, the total charge made by the repossession
company to the financial institution is taxable.

Please feel free to write or call if you have any questions. You may call me
toll-free at 1-800-531-5441, extension 3-4565.

Sincerely,

Larry Koenig
Tax Administration Division