Is a legal-support business that obtains records from non-parties via subpoena and deposition-by-written-questions (issued through a notary public) exempt from Texas sales tax, and are its various fees and shipping charges taxable?

Plain-English summary

A business supporting the legal community asked how its services are taxed. Under the Texas Rules of Civil Procedure, a subpoena for deposition by written questions -- a written alternative to an oral deposition -- must be issued by a court reporter, a court clerk, a judge, or a notary public, and since judges/courts customarily don't issue subpoenas for depositions, law firms depend on notary-public-run services like this one. The business obtains records (mostly from hospitals, doctors, employers, banks, and occasionally policing authorities) on behalf of law firms representing insurance companies, the auto industry, and the medical profession, all in civil lawsuits. Copies of the records obtained cannot legally be sold to anyone who isn't a party to the underlying lawsuit.

The Comptroller ruled the entire fee structure is exempt under Section 151.353, which exempts court reporting services relating to preparing a document or record in a civil or criminal suit by a notary public or Texas-licensed court reporter, so long as the document is (1) prepared for a suit participant or the court, and (2) sold to a suit participant. Because this business's clients are always suit participants and it cannot sell copies to non-parties, its full menu of charges -- deposition-by-written-questions base fees, authorization fees, per-page Bates-numbered exhibit fees, court-copy fees, opposing-counsel base and exhibit fees, cancellation fees, cross-question fees, custodial fee pass-throughs, research fees, and statutory witness fees -- are all exempt. The letter separately confirmed the overnight shipping charges for delivering subpoenas or returning records are not taxable at all, because shipping charges aren't connected to the sale of a taxable item when the underlying service itself isn't taxable.

What this means for you

Court reporters, notaries public, and legal-support/records-retrieval businesses

If your service fits § 151.353's two-part test -- prepared for a suit participant/court and sold only to suit participants -- your full range of related fees (base fees, per-page exhibit charges, research, custodial pass-throughs, cancellation fees, etc.) can be exempt, not just the core deposition/subpoena fee.

Law firms using notary-public or court-reporter record-retrieval services

Expect these vendor charges to come without Texas sales tax, including shipping/delivery charges for subpoenas and returned records, when the vendor's services meet the § 151.353 exemption.

Accountants and tax professionals

This letter illustrates that shipping/delivery charges follow the taxability of the underlying transaction -- when the underlying service is exempt, delivery charges tied to it aren't independently taxable.

Common questions

Q: Is a records-retrieval service run through a notary public's subpoena power exempt from sales tax?
A: Yes, per this letter, when it satisfies § 151.353 -- prepared for a suit participant/court and sold only to suit participants.

Q: Does the exemption cover all the various fees (research, cancellation, custodial, exhibits), or just the core subpoena fee?
A: Per this letter, the whole range of described fees fell within the exemption because they all relate to preparing records for suit participants who cannot resell copies to non-parties.

Q: Are shipping charges for delivering subpoenas or returning records taxable?
A: No, per this letter -- they're not connected to the sale of a taxable item, so they aren't taxable.

Citations and references

Statutes:

• Tex. Tax Code § 151.353 (exemption for court reporting services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9707604L

Original ruling text

July 24, 1997

Dear ***:

Thank you for your letter of July 8, 1997. You requested that we provide an
opinion on the taxability of your services.

Facts:
You provide a service supporting the legal community. Your primary service
consists of obtaining records from non-parties relative to a pending lawsuit.
The Texas Rules of Civil Procedure allow these records to be obtained by
subpoena and deposition by written questions. This service is very similar to
that of a court reporter, but done in a written format rather than an oral
deposition. Under these rules, a subpoena must be issued by a court reporter,
a clerk of a county or district court, a judge, or a notary public.
Customarily, judges and courts do not issue subpoenas for depositions. Thus,
as a notary public, law firms are dependent on services such as yours to obtain
these records.

Your clients are law firms representing insurance companies, the automobile
industry, and the medical profession. The subpoenas are issued mostly to
hospitals, doctors, employers, banks, and occasionally to policing authorities.
All lawsuits are civil, as criminal suits do not have a discovery process.

The original records are proprietary information, but in accordance with the
rules of discovery, copies must be made available to all parties of record,
i.e., all attorneys involved in a particular lawsuit. Copies cannot be sold to
anyone who is not a party to the lawsuit.

The following is a breakdown and description of your services.

Deposition by Written Questions - A base fee charged to the ordering attorney
which includes the issuance of a notice to all parties of record, issuance of a
subpoena to the facility from whom we are to obtain records, and the court
certification letter filed with the court.

Authorization - A base fee charged to the ordering attorney to obtain the
records with a person's authorization only, without the use of a subpoena. You
stated you are given the authorization to obtain the document by the person's
attorney. You then obtain the document and process the document according to
the attorney's instructions.

Exhibits - Bates Numbered Originals: Per page fee for obtaining the original
documents for the ordering attorney; our company then adds sequential page
numbers for legal reference (either by stamp or labels).

Exhibits - Court Copy: A copy of the Bates Numbered Originals to be filed with
the court.

Opposing Counsel Base Fee: A base fee charged to any other attorneys of record
who may desire copies of the legal instruments.

Opposing Counsel Exhibit Copies: Per page fee for copies of the Bates Numbered
Originals for any other attorney of record who may desire copies.

Cancellation Fees: A base fee charged to the ordering attorney, plus any
out-of-pocket expenses incurred to date, when an order is terminated by the
client prior to receiving records, but after issuing the subpoena.

Cross Questions: Questions submitted by any "opposing counsel" to be added to
the deposition on written questions directed to the facility from whom we are
to obtain records. This fee is charged to the attorney who places the original
order, not the attorney requesting the "cross questions."

Custodial Fee: Reimbursement for fees charged to us by the facility from whom
we are obtaining records; these fees are passed directly to the ordering
attorney with no surcharge added.

Research Fee: Fees charged to the ordering attorney for research time expended
by us in determining the correct whereabouts of facilities we are to subpoena.

Witness Fees: Reimbursement for fees attached to the subpoena, which fees are
determined by law, i.e., $1.00 for state court cases and $10.00 for federal
court cases.

Overnight Shipping Charges: Reimbursement for fees incurred for delivery of
subpoenas, or return of records from provider, i.e., *** or
*****.

Response: Section 151.353 of the Texas Tax Code exempts court reporting
services relating to the preparation of a document or other record in a civil
or criminal suit by a notary public or a court reporter licensed by the State
of Texas Court Reporters Certification Board if the document is:

(1) prepared for the use of a person participating in a suit or the
court in which a suit or administrative proceeding is brought; and

(2) sold to a person participating in the suit.

Because you provide your services to participants in a lawsuit and cannot sell
copies to anyone who is not a party to that lawsuit, your services are exempt.
The shipping charges are not taxable because the charges are not connected to
the sale of a taxable item.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division