The opinion
THE ATTORNEY GENERAL
OF TEXAS
Novaher 20, 1987
Honorable Bob Bullock Opinion No. m-823
Comptroller of public Accounts
L.B.J. Building Re: Whether attorneys fees
Austin, Texas 70774 are in certain circum-
stances subject to sales
tax (RQ-1217)
Dear Mr. Bullock:
You ask our opinion about recent amendments to the
Tax Code provisions that govern the limited sales, excise,
and use tax. Tax Code ch. 151. During the second called
session the legislature expanded the definition of
"taxable services" to include "debt collectiont' services.
C
Acts 1987, 70th Leg., 2d C-S., ch. 5, art. 1, pt. 4, 512,
at 17, 25 (amending Tax Code §151.01Dl(a)). The
legislature defined "debt collection service" as follows:
(a) 'Debt collection service' means
activity to collect a debt or claim, to
adjust a debt or claim, or to repossess
property subject to a claim.
(b) 'Debt collection service' does not
include the collection of a judgment by an
attorney or by a partnership or professional
corporation of attorneys if the attorney,
partnership, or corporation represented the
person in the suit from which the judgment
arose.
Acts 1987, 70th Leg., ch. 5, art. 1, pt. 4, 54, at 17, 21
(to be codified as Tax Code 5151.0036).
You ask questions about statutory construction: we
limit this opinion to those questions. Your questions
,!- are:
1. Are attorneys' fees to date of judg-
ment for the collection of open accounts and
-
debts subject to tax?
p. 3914
Honorable Bob Bullock - Page 2 (JM-8Zz3)
2. Are attorneys' fees for filing bank-
ruptcy claims subject to tax?
?
3. Are charges by attorneys and others
in connection with land foreclosures subject
to tax?
4. Are attorneys' fees for enforcing
contracts where there is a money dispute
subject to tax?
5. If an attorney charges for enforcing
a judgment in a case in which he was not the
attorney who obtained the judgment, are his
fees subject to tax?
6. Are attorneys' fees for negotiating
debt and claim adjustments subject to tax?
7. Are attorneys' fees in connection
with enforcing insurance claims subject to
tax?
-,
Before we address the issues raised by those questions, a
review of the legislative history of section 151.0036 may
be helpful.
The extension of the sales tax to debt collection
services was part of House Bill No. 61, the omnibus tax
measure adopted by the second called session of the 70th
Legislature. On July 2, 1987, Representative Paul Colbert
offered an amendment from the floor that would have
extended the sales tax to include legal services. The
amendment was tabled, with 104 voting yea and 14 voting
nay. House Journal, 70th Leg., 2d C.S., at 181 (1987). A
second amendment from the floor on the same subject,
offered by Representative Al Luna, likewise was tabled,
with 116 voting yea and 2% voting nay. H.J., ,70th Leg.,
2d C.S., at 219 (1987).1 The Senate then considered Rouse
Bill No. 61 and added provisions to extend the sales tax
to include services, but not those, such as the practice
1. Another measure, House Bill No. 6, also was
introduced during the second called session, specifically
to extend the sales tax to legal services: it was reported
out of committee, but not considered on the floor.
p. 3915
Honorable Bob Bullock - Page 3 0-823)
of law, denominated as 81professional." See aenerallv Bill
Analysis to H.B. No. 61, prepared for House Ways and Means
Committee, filed in Bill File to H.B. No. 61, Legislative
Reference Library.
The House refused to concur in the Senate version of
the substitute, see H.J., 70th Leg., 2d C-S., at 335
(1987) t and a conference committee of members from the two
houses was appointed to fashion a compromise. Before the
aooointment of the' conference committee, the oresent
section anneared in neither the Senate nor the House
versions of H.B. 61.
The circumstances leading to the adoption by the
legislature of the final version of House Bill No. 61
suggest that the language adding section 151.0036 to the
Tax Code was given brief attention, both in the conference
committee deliberations and on the floors of the House and
Senate. Thus, the legislative history available for
determining legislative intent is scant. See aenerallv
Gov't Code 5311.023.
C The only reference to section 151.0036 in the debates
in either house on the conference committee version of
House Bill No. 61 before final passage came during a
colloquy on the floor of the House of Representatives
between Representative Dan Morales, the House sponsor of
House Bill No. 61 and a member of the conference committee
that produced section 151.0036, and Representative Greg
Luna. We set out the exchange in its entirety below.
Representative Luna: On these debt collec-
tion service: if an attorney sends a letter
for a debt?
Representative Morales: No, that would not
be covered.
Representative Luna: That would not be
covered. If an attorney seeks to have
foreclosure on real property? It says
repossessed property subject to a claim.
Representative Morales: Repeat that again.
Representative Luna: If an attorney proceeds
to represent a client on a foreclosure on
p. 3916
Honorable Bob Bullock - Page 4 (JM-823)
real property -- would that be subject to
fax?
?
Representative Morales: No, Greg, and I
guess that I would refer you to paragraph B
of that, of the debt collection provision,
where it indicates that a debt collection
service does not include collection of a
judgment by an attorney or by a partnership
or professional corporation of attorneys if
that attorney represented the person in the
suit.
Representative Luna: But what bothers
Dan is that a lot of collection is done :;
attorneys that does not result in a
judgment.
Representative Morales: That is right.
Representative Luna: And so,' even if it
does not, it would not be subject. . . .
Representative Morales: Greg, I think, that
if the reason that there is a lawyer
involved in a particular case is to
establish the claim then that would not
satisfy the definitional language and would
not be debt service collection. Because it
would not be focused upon collecting the
debt but would be deemed to be an establish-
ment of the existing claim.
Representative Luna: But, sometimes YOU
know on a debt and on an account - and I
don't do this much, I am trying to clarify
it for a later purpose - attorneys do send
letters on accounts that are due and most of
them are resolved without a judgment.
Representative Morales: Greg, I guess maybe
the easiest way for us to think about that
is that if the lawyer is doing what debt
collectors do and that is all then he would
be treated, that attorney would be treated -.
as a debt collector. However, if that
attorney has been involved in some other
aspect of the case relative to establishing
the claim or ultimately receiving the ---.
p. 3917
Honorable Bob Bullock - Page 5 (JM-823)
judgment he would fall, that individual
would fall, under the exception under para-
graph B.
Representative Luna: Many general practi-
tioners do this as a minor, incidental item
of their practice.
Representative Morales: Well they are debt
collectors, they are debt collectors and
subject to that provision of the bill.
Representative Luna: Will they have to
prescribe to any fee, permit fee, that sort
of thing?
Representative Morales: No, they are
already licensed by the state as an attorney
and I would presume that that would be
sufficient.
Debate on H.B. No. 61 on the floor of the House of
Representatives, 70th Leg., 2d C.S. (July 20, 1987)
(transcript available from House Hearing Reporter).
We think that the legislative intent behind this
hastily-drafted and ambiguous statute is most clearly
reflected in Representative Morales' statements. Repre-
sentative Morales' initial responses to Representative
Luna's questions are all to the effect that the services
of a lawyer would not be subject to the tax. Then
Representative Morales qualifies those statements by
saying that the tax would apply to a lawyer's services if,
the lawyer "is doing what debt collectors do and that is
all." Representative Morales' statements, taken together,
suggest that the legislative intent behind section
151.0036 was that a lawyer would be engaged in a taxable
activity & when engaged in debt-collection activity
that a non-lawyer could also engage in. That interpreta-
tion can be harmonized with the language of section
151.0036. Also, that interpretation is supported by the
fact that the same legislature that enacted section
151.0036 rejected a proposition to apply the sales tax to
legal fees generally.
Although we think it is possible to identify the
legislative intent behind section 151.0036, the legisla-
ture did not provide any guidelines for determining when a
lawyer "is doing what debt collectors do and that is all."
p. 3918
Honorable Bob Bullock - Page 6 (JM-823)
The practical difficulty with applying that standard is
that a lawyer's services to a creditor client may include,
in the same instance, services that only a lawyer can
render as well as services that non-lawyers, such as debt
collectors, can render. See aenerally Note, Collection
Aaen ies and th Unauthorized Pra tice of La 1 J. Legal
ProfC 155 (19;6); Annot., 27 CA.L.R.3d :i52 (1969) ;
Wolfram, Modern Legal Ethics, 5844 (1987). See also
Attorney General Opinion WW-312 (1981) (corporation may
not be represented in county court or county court at law
on action to collect debt by an officer who is not
lawyer). For example, a lawyer might write a demand
letter after counseling a client about different ways to
attempt to collect a debt or to adjust a claim. The
lawyer's advice, based on his legal skills and knowledge;
might be that further attempts to collect the debt or to
adjust the claim might be unfruitful because of various
legal or practical impediments or that additional efforts
might simply be too costly in light of the benefits even a
complete victory in the courts might bring. Although the
paperwork ultimately produced by the lawyer might be
similar to the paperwork produced by a non-lawyer debt
collector, the lawyer certainly would have practiced law
as part of the overall transaction. The question raised
by section 151.0036 is whether any part of a lawyer's
services in such a situation are subject to the sales tax.
If a part of a lawyer's services in situations like
the one described above were to be taxed, the comptroller
would be required to analyze the services provided by a
lawyer in order to identify the aspects that did not
involve the lawyer's legal skill or knowledge in any
way. It would be absurd for the legislature to,put the
comptroller in that position. Further, even if it were
possible to make that distinction, the attorney-client
privilege would make it nearly impossible for the
comptroller to obtain the information necessary to make
such a determination. Therefore, we conclude that the
legislature did not intend for "debt collection servicesl*
to include isolated pieces of transactions engaged in by
lawyers. See Gov't Code.J311.021 (legislature is assumed
not to intend absurd results). Rather, we think that the
legislature intended to tax services provided by a lawyer
only if it is clear that the lawyer is acting in a
transaction as nothina more than a debt collector. Again,
that interpretation is supported by the fact the the
legislature rejected a proposal to tax legal services
generally. Therefore, only in an instance in which your
p. 3919
Honorable Bob Bullock - Page 7 (JM-82%
office can demonstrate that a lawyer is not providing
legal services at all but is, for example, merely using
- his license to shield debt collection services from the
sales tax, would services provided by a lawyer be subject
to the sales tax.
SUMMARY
The services of a lawyer are not taxable
services under chapter 151 of the Tax Code
unless the comptroller determines that the
lawyer is not providing legal services and
is acting solely as a debt collector.
J-b
Very truly yo
.
JIM MATTOX
Attorney General of Texas
MARYKELLER
P Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Don Bustion and Sarah Woelk
Assistant Attorneys General
p. 3920