Texas Letter Ruling 9212L1208G14: Towing Charges — Second Tows Or Transfer Fees In Connection With Repossession Services And Separately Billed Are Part Of Debt Collection Services

Subject

Towing Charges — Second Tows Or Transfer Fees In Connection With Repossession Services And Separately Billed Are Part Of Debt Collection Services

Plain-English summary

This November 24, 1992 letter from the Texas Comptroller's Tax Administration Division clarifies when towing charges connected to a vehicle repossession are taxable. It confirms and expands on an earlier letter (from Comptroller staffer Lucy Glover, dated June 26, 1991) that had summarized the agency's position on towing charges.

The rules the letter lays out:

• Plain towing is not taxable, unless the towing company is also the repossessor.
• Towing hired directly by a financial institution to carry out a repossession is also not taxable.
• But when a repossession company does the towing itself, or hires a towing company in connection with a repossession, the towing charge becomes part of the repossession company's taxable debt collection service. The repossession company must collect tax from the financial institution on its total repossession charge — even if the towing fee is broken out as a separate line item on the bill.
• Towing companies hired by repossession companies do not need to collect resale certificates from those repossession companies, because the transaction between the towing company and the repossession company itself is not taxable (the tax gets collected downstream, on the repossession company's charge to the financial institution).

What this means for you

Repossession companies

If you tow a repossessed vehicle yourself, or hire a towing company as part of doing a repossession, the towing charge is folded into your taxable debt collection service. You must charge and collect sales tax on your total charge to the financial institution, even if you itemize the towing fee separately on the invoice.

Towing companies

If a financial institution hires you directly to tow a repossessed vehicle, your towing charge is not taxable. If a repossession company hires you to do the towing (including second tows or transfers) as part of its repossession job, your charge to the repossession company is not taxable, and you don't need a resale certificate from the repossession company — tax is collected further down the chain, on the repossession company's bill to the financial institution.

Financial institutions (loan/finance companies)

Expect to be charged and pay sales tax on the total amount billed by a repossession company for a repossession that includes towing, even if the towing charge is listed as a separate item. If you hire a towing company directly (not through a repossession company) to tow a repossessed vehicle, that towing charge is not taxable.

Accountants and tax professionals

The key distinction is who is doing or arranging the tow. Towing services standing alone are generally not taxable in Texas. But once a repossession company is the one towing (or hiring the tow) as part of its repossession work, the towing charge loses its separate identity for tax purposes and becomes part of the taxable "debt collection service," regardless of how it's billed or itemized.

Common questions

Q: Is towing a car always tax-free in Texas?
A: Under this letter, yes — unless the towing company is also acting as the repossessor, or a repossession company is doing or arranging the tow as part of a repossession.

Q: We separately bill the towing charge on our repossession invoice — does that make it exempt?
A: No. The letter is explicit that the repossession company must collect tax on its total repossession charge to the financial institution "even if the towing charge is separately stated."

Q: If a financial institution hires the tow truck directly to repossess a car, is that taxable?
A: No. The letter confirms that when a towing company is hired directly by the financial institution that has exercised its authority to repossess the vehicle, the towing charges are not taxable.

Q: Do towing companies need a resale certificate when working for a repossession company?
A: No. The letter states towing companies hired by repossession companies do not have to obtain resale certificates, because that transaction (towing company to repossession company) is not itself taxable.

Q: Does this letter cover "second tows" or "transfer fees" specifically?
A: The letter addresses towing charges connected with repossession generally — including situations where a repossession company hires a towing company "in conjunction with the repossession." It does not use the terms "second tow" or "transfer fee" in its own text, but its rule applies to towing charges billed in connection with a repossession regardless of how they're labeled.

Q: Can I rely on this 1992 letter for my situation today?
A: This letter was addressed to a specific taxpayer over three decades ago and does not carry the Comptroller's current reliance protections. It may not reflect current Comptroller policy. Confirm current treatment with a licensed Texas tax professional or the Comptroller's office.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9212L1208G14

Original ruling text

November 24, 1992

Dear ***:

I would like to take this opportunity to clarify our agency's position on
towing and repossession services. This letter is in reference to Lucy Glover's
letter to you dated June 26, 1991.

In her letter, Lucy stated that towing charges are not taxable unless the
towing company is also the repossessor. Also, in cases in which the towing
company is hired by the financial institution that has exercised the authority
to repossess the vehicle, the towing charges are not taxable.

Lucy's letter is an accurate summary of our policy on towing charges in these
situations.

However, when a repossession company does the towing or hires a towing company
to tow a vehicle in conjunction with the repossession, the towing charges are
part of the repossession company's taxable debt collection service. The
repossession company must collect tax from the financial institution on its
total repossession charge, even if the towing charge is separately stated.

Towing companies hired by repossession companies do not have to obtain resale
certificates from the repossession companies, as the transaction between the
towing company and the repossession company is not taxable.

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

Sincerely,

Larry Koenig