Does a bank owe sales tax when it forwards checks, imprinters, or electronic capture machines to customers, or when it charges notary fees?

Subject

Check Sales By Banks/Credit Unions To Customers

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9309L1256B03

Plain-English Summary

A bank asked the Comptroller about the sales tax treatment of three things: sales of credit card imprinters and electronic capture machines, check sales, and notary fees charged by the bank.

The Comptroller's answer turns on what role the bank is playing in the transaction. If a bank simply forwards an account holder's order for a check, imprinter, or electronic capture machine to a vendor, the vendor delivers the property directly to the account holder, and the bank charges the account holder's account for the exact amount the bank paid the vendor, then the bank is treated as an agent of the vendor. Because the bank is acting as the vendor's agent, the vendor is considered to be doing business in Texas, and it's the vendor — not the bank — that must collect and report sales or use tax on the transaction. The letter notes the bank should make sure the vendor is permitted and collecting the applicable taxes.

The answer changes if the bank sells the checks, imprinters, or electronic capture machines itself for a profit. In that case the bank is treated as a retailer of these items. The bank can issue the vendor a resale certificate instead of paying tax on its own purchase, but the bank must then collect sales tax on the entire charge to the account holder.

Separately, the letter states plainly that charges for notary services are not taxable.

As with other letters of this type, the Comptroller notes the opinion is based on the facts presented, and that additional or different facts could change the outcome.

What This Means For You

Ask whether the bank is a pass-through agent or a seller. The tax outcome depends entirely on the bank's role. When the bank forwards an order and passes through the exact vendor price to the account holder, the bank is acting as the vendor's agent — and the vendor, not the bank, is on the hook for collecting and reporting sales or use tax.

If the bank marks up the item, it becomes a retailer. A bank that sells checks, imprinters, or electronic capture machines for a profit is treated as a retailer of those items. That means it should use a resale certificate on its own purchases from the vendor, and then collect sales tax on the full amount it charges the account holder.

Banks acting as agents still have a compliance role. Even when the vendor is the one legally required to collect tax, the letter says the bank should ensure the vendor is permitted and is in fact collecting the applicable taxes.

Notary fees are simply not taxable. No conditions or exceptions are mentioned — charges for notary services fall outside the sales tax base entirely.

Q&A

Q: Does a bank have to collect sales tax when it forwards a check or imprinter order from a customer to a vendor?
A: Not if the bank is acting purely as the vendor's agent — forwarding the order, having the vendor deliver directly to the account holder, and charging the account holder's account the exact amount paid to the vendor. In that case, the vendor (established as doing business in Texas through the bank's agency actions) must collect and report the sales or use tax, not the bank.

Q: What is the bank's responsibility if it's acting as the vendor's agent?
A: The letter says the bank should ensure that the vendor is permitted and is collecting the applicable taxes.

Q: What happens if the bank sells the checks or machines for a profit instead of just forwarding the order?
A: Then the bank is considered a retailer of these items. The bank would issue the vendor a resale certificate in lieu of tax on its purchases, and collect sales tax on the entire charge to the account holder.

Q: Are notary fees charged by a bank taxable?
A: No. The letter states charges for notary services are not taxable.

Q: What items were at issue in this letter?
A: Credit card imprinters, electronic capture machines, and checks sold or forwarded by a bank to its account holders, plus notary fees charged by the bank.

Q: Can this bank's specific answer be relied on by other banks or credit unions in every situation?
A: The letter states the opinion is based on the facts presented, and that additional or different facts may change the opinion.

Original ruling text

September 8, 1993

Dear ***:

Thank you for your letter of August 20,1993, concerning the collection
of taxes on credit card imprinter, electronic capture machine, and check
sales, and notary fees by banks.

In a situation where a bank forwards a check, imprinter, or electronic
capture machine order from an account holder to a vendor, the vendor
delivers the property to the account holder, and the bank in turn
charges the account holder's account for the exact amount paid the
vendor, we will regard the bank as an agent of the vendor. The bank's
actions in the capacity of an agent establishes the vendor as doing
business in Texas. The vendor should collect and report either sales or
use taxes on the transaction. The bank should ensure that the vendor is
permitted and collecting applicable taxes.

If the bank sells the checks, imprinters, or electronic capture machines
for a profit, the bank will be considered a retailer of these items. The
bank would issue the vendor resale certificates in lieu of tax on these
purchases and collect sales tax on the entire charge to the account
holder.

Charges for notary services are not taxable.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct
line is 512/475-0613. You may also write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

NOTE: Previous Accession Number 93070152L.2 and/or 9307152L