Texas Letter Ruling 9211L1209A08: Towing/Transport Charges — Part Of Debt Collection/Repossession Services

Plain-English summary

This 1992 Texas Comptroller letter clarifies the taxability of vehicle towing charges in repossession situations, after the Comptroller learned there was confusion about the policy. It responds to and reaffirms an earlier letter (dated May 22, 1991, from Lucy Glover, then Manager of the Tax Administration Division) that addressed two situations: towing in conjunction with repossessions, and repossessions made by financial institution employees. In both of those situations, the towing companies were only towing the vehicle to a storage area designated by the financial institution — they were not performing repossession services themselves — so the towing charges were correctly held not taxable, and that remains the Comptroller's policy.

This letter then draws a distinction: towing charges billed by a repossession company (as opposed to a plain towing company) are taxable, even if the towing charge is separately stated on the bill, because the towing is part of the taxable repossession service. However, if the repossession company hires a separate towing service to move the vehicle, the fee that towing company charges the repossession company is not taxable, and the towing company does not need to obtain a resale certificate from the repossession company. The repossession company's total charge to the financial institution is taxable as a debt collection service.

What this means for you

Repossession companies

If you perform repossession services and also handle (or bill for) towing the repossessed vehicle, your entire charge to the financial institution — including the towing portion — is taxable as a debt collection service, even if you list the towing charge as a separate line item.

Towing companies that work for repossession companies

If a repossession company hires you just to tow a vehicle it has already repossessed, your fee to that repossession company is not taxable, and you don't need to collect a resale certificate from the repossession company to support that treatment.

Towing companies that work directly for financial institutions

If you tow a vehicle to a storage location designated by a financial institution, and you are not the one performing the repossession, your towing charge is not taxable — consistent with the Comptroller's 1991 guidance that this letter reaffirms.

Financial institutions

Expect that a repossession company's full invoice to you, including any towing component, is taxable as part of a taxable debt collection service, regardless of how the invoice breaks out towing versus repossession charges.

Common questions

Q: Does separately stating the towing charge on the invoice make it exempt?
A: No. The letter is explicit that towing charges by repossession companies are taxable "even if the towing charges are separately stated," because the towing is part of the taxable repossession service.

Q: If a repossession company subcontracts the tow to an outside towing company, is that towing company's fee taxable?
A: No. The towing fee that an outside towing company charges the repossession company is not taxable, and the towing company does not need a resale certificate from the repossession company for that charge.

Q: What about a towing company that just tows a car to a storage lot for a bank, without doing the repossession itself?
A: Not taxable. That was the subject of the earlier May 22, 1991 letter from Lucy Glover, and this letter confirms that answer is still correct and still the Comptroller's policy.

Q: What is taxed, exactly, when a financial institution uses a repossession company?
A: The repossession company's total charge to the financial institution is taxable as a debt collection service — this includes any towing performed or billed by the repossession company as part of that 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/9211L1209A08

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.
Lucy Glover, who was Manager of the Tax Administration Division at the
time, wrote you a letter on May 22, 199l dealing with towing charges in
conjunction will try repossessions and with repossessions made by
financial institution employees. In both cases, the towing companies
were not performing repossession services, but merely towing the vehicle
to a storage area designated by the financial institution.

Lucy's answer that these towing charges were not taxable was correct and
this is still our policy in this area.

However, towing charges by repossession companies are taxable, even if
the towing charges are separately stated. The towing charges are a part
of the taxable repossession service. In cases where the repossession
company hires a towing service to move the vehicle, the towing fee
charged by the towing company to the repossession company will not be
taxable. The towing company is not required to obtain a resale certificate
from the repossession company. The repossession company's total charge to
the financial institution will be taxable as a debt collection service.

Please feel free to write or call if you have any questions. You may call
toll-free at 1-800-531-5441, ext. 3-4565 or write the Tax Administration
Division at the address above.

Sincerely,

Larry Koenig