Is Texas sales tax due on towing charges for repossessed vehicles?

Plain-English summary

A towing business asked the Comptroller's office whether its charges for towing vehicles were taxable. The vehicles it towed were "voluntary repos" — a financial institution's customer had defaulted, and the institution furnished the towing business with keys and the name and address of the person whose vehicle was to be picked up.

The Comptroller explained that the taxability of towing charges in a repossession context turns on who has possession of the vehicle at the time the tow is arranged. When a repossession company is hired by a financial institution to repossess a vehicle that the institution does not already have access to or possession of, all of the repossession company's charges to the institution are taxable as a debt collection service — including towing charges, even if those towing charges are separately stated on the bill. By contrast, if the financial institution already has access to and possession of the vehicle and simply calls a towing company to move it, the towing company's charges to the institution are not taxable, because no debt collection service is being performed. And when a repossession company itself hires a towing company to move a vehicle after repossession, the towing company's charge to the repossession company is not taxable (the towing company does not need to obtain a resale certificate from the repossession company), although the repossession company's total charge to the financial institution remains taxable.

Applying this framework to the facts described, the Comptroller stated that no tax would be due on the towing charge if the financial institution already has access to and possession of the vehicle to be towed; otherwise, sales tax is due.

What this means for you

Towing companies working with financial institutions or repossession companies

Whether your towing charge is taxable depends on whose possession the vehicle is in when you're called. If a financial institution already has access to and possession of the vehicle and simply hires you to move it, your charge is not taxable. If you're hired directly by a repossession company to move a vehicle after it has already repossessed it, your charge to that repossession company is also not taxable, and you don't need a resale certificate from the repossession company to support that treatment.

Repossession companies

If you are hired by a financial institution to repossess a vehicle that the institution does not yet have access to or possession of, your entire charge to the institution — including any towing component, even if separately stated — is taxable as a debt collection service, regardless of whether you perform the towing yourself or subcontract it to a towing company.

Financial institutions and lenders

Expect sales tax on the full charge from a repossession company when the vehicle was not already in your possession before the repossession company acted. If you already have access to and possession of a vehicle and merely need it moved, hiring a towing company directly for that move is not a taxable debt collection service.

Common questions

Q: Are towing charges for a repossessed vehicle always taxable?
A: No. It depends on possession. If the financial institution doesn't already have access to and possession of the vehicle, the repossession company's full charge — including towing — is taxable as a debt collection service. If the institution already has access to and possession of the vehicle and just calls a towing company to move it, that towing charge is not taxable.

Q: Does separately stating the towing charge on the bill change the result?
A: No. When the underlying charge is taxable as a debt collection service, towing charges remain taxable even if separately stated.

Q: If a repossession company subcontracts the tow, does the towing company need a resale certificate?
A: No. The towing company is not required to obtain a resale certificate from the repossession company, even though the repossession company's total charge to the financial institution is still taxable.

Citations and references

No specific statutes or administrative rules are cited in the text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9501L1332F08

Original ruling text

January 9, 1995

Dear *****:

This is in response to your question regarding taxability of your
charges for towing vehicles of *. It is your understanding
that the vehicles towed are voluntary repos. ** furnishes you
with the keys and names and addresses of the person whose vehicle is
to be picked up.

Response: Our policy in this area is as follows:

• 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.

In the situation that you described, no tax would be due on the
towing charge if the financial institution has access to and
possession of the vehicle to be towed. Otherwise, sales tax is due.

This opinion is based on the facts presented. Other facts though
similar may provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9501865L