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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 circumstances 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. 

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 judgment 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 bankruptcy 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 

subject to tax? 

money dispute 

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. 

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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) 

C 

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. 

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 collection 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 

fax? 

subject to 

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 

that attorney represented the person in 

suit. 

if 

the 

Representative Luna: But what bothers 

Dan is that a lot of collection is done 

attorneys that does not result in 

judgment. 

:; 

a 

Representative Morales: That is right. 

Representative Luna: And so,' even if 

does not, it would not be subject. . . . 

it 

? 

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 establishment 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 paragraph B. 

Representative Luna: Many general practitioners 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. Representative 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 interpretation 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 legislature 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 

ProfC 155 (19;6); 27 CA.L.R.3d 

1 J. Legal 

Annot., :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 
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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. 

Very truly yo J-b . 

JIM MATTOX 

Attorney General of Texas 

MARYKELLER 

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