Is a repossession company's charge to a bank or lender for repossessing a vehicle a taxable service, including when the bank calls off the repossession before the vehicle is picked up?

Plain-English summary

A repossession company asked the Comptroller whether its charges to banks and financial institutions for repossessing vehicles are taxable. The company's repossession jobs are assigned by banks via fax and phone when a customer has defaulted; before picking up a vehicle, the company confirms with the Department of Motor Vehicles that the VIN is correct and that the bank is the lien holder.

Voluntary repossessions. When a bank calls and says the customer has agreed to turn over the vehicle, and the company picks it up, that charge is taxable. Hiring a repossession company to repossess a vehicle not already in the financial institution's possession is a taxable "debt collection service."

"Call offs." When the company is assigned to work a repossession but the bank later tells it to close the account — because the customer brought the loan current — without ever picking up the vehicle, that is still taxable. Any activity to collect or adjust a delinquent debt or claim is a taxable debt collection service, even if the vehicle is never actually repossessed.

What counts as taxable. Rule 3.354(a)(4) defines a "debt collection service" as any activity performed for consideration to collect or adjust a delinquent debt or claim, or to repossess property subject to a claim, including activity performed in furtherance of satisfying or compromising a debt or claim. The repossession company must collect sales tax on the total sales price charged to the financial institution, including towing charges and other related expenses, even if those are separately stated on the invoice. One exception noted in the rule: if a debt collector merely investigates whether a creditor has a valid claim and then decides not to pursue collection, that investigatory activity is not taxable.

What this means for you

Repossession companies working for banks and lenders

Your charges to a financial institution for repossessing collateral are taxable as a debt collection service — collect sales tax on the full charge, including towing and other related fees, even when they're broken out as separate line items.

Repossession companies handling "call offs"

Don't assume that canceling an assignment before pickup takes it out of the tax base. If you were engaged to collect on a delinquent account and performed any activity toward that (even just being assigned the job and standing ready), the charge for that activity is still a taxable debt collection service.

Financial institutions and banks using repossession vendors

Expect sales tax on your repossession vendor's invoices, including towing and related charges billed as part of the repossession job.

Common questions

Q: Is a voluntary repossession (where the customer agrees to give up the vehicle) taxable?
A: Yes. When a repossession company is hired by a bank to pick up a vehicle not already in the bank's possession, the charge is a taxable debt collection service.

Q: If the bank calls off the repossession before the vehicle is picked up, is there still tax?
A: Yes. Any activity to collect or adjust a delinquent debt is taxable even if the vehicle is never actually repossessed.

Q: Does the tax apply to towing charges billed along with the repossession fee?
A: Yes — the total sales price of the debt collection service, including towing and other related expenses, is taxable even if separately stated.

Q: Is there any repossession-related activity that is NOT taxable?
A: Investigating whether a creditor has a valid claim, without going on to attempt collection or adjustment of that claim, is not taxable.

Q: Can this taxpayer's competitors rely on this letter?
A: No. This opinion is based on the facts submitted by this particular taxpayer; other facts, though similar, may yield different results, and it can only be relied on by the taxpayer to whom it was issued.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.354(a)(4) (definition of a taxable 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/9601895L

Original ruling text

January 24, 1996

Dear *****:

Thank you for your letter concerning the taxability of repossession services.

Service description: Repossessions are assigned to ***** via fax and
telephone, to be picked up from the banks' customers because of default.
Before you leave on a repossession, you contact the Department of Motor
Vehicles (DMV) to make sure the Vehicle Identification Number (VIN) is correct
and the bank is the lien holder. Then you go out to work the assignment.

Questions:

1. Voluntary Repossession: When the bank calls and says the customer wants to
   turn over the security to the bank and you pick it up for them, is it taxable?

Response: 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.

2. Call Offs: When you are working repossession for the bank and the customer
   contacts the bank to bring the note current, and the bank makes arrangements
   with the customer, the bank notifies you to close the account and you do not
   pick up security, is it taxable?

Response: Any activity by a repossession company to collect or adjust a
delinquent debt or claim is a taxable debt collection service even if the
repossession company does not actually have to repossess the vehicle from the
customer.

3. What is taxable?

Response: The enclosed Rule 3.354(a)(4) defines a debt collection service as:

any activity performed for consideration, to collect or adjust a delinquent
debt, to collect or adjust a claim, or to repossess property subject to a
claim, including any activity performed in furtherance of the satisfaction or
compromise of a debt or claim.

A repossession company should collect sales tax on the total sales price of the
debt collection service to the financial institution. This includes towing
charges and other related expenses, even if separately stated. However, as
explained in subsection (d)(1) of the rule, activities undertaken by a debt
collector to determine whether a creditor has a claim are not taxable if the
debt collector determines not to attempt to collect or adjust the claim.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division