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- THE ATTORNEY GENERAL OF TEXAS
Novaher20, 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)
DearMr. Bullock:
You ask our opinion about recent amendments to the Tax Code provisions that govern the limited sales, excise, anduse 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., 2dC-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 adebt or claim, to adjust a debt or claim, or to repossess property subject to aclaim. (b) 'Debt collection service' does not include the collection of a judgment by an attorney orby apartnership orprofessional corporation of attorneys if the attorney, partnership, or corporation represented the person inthe suit fromwhich the judgment arose.
Acts 1987, 70th Leg., ch. 5,art. 1,pt. 4, 54,at 17, 21 (tobe codified asTax Code 5151.0036).
You ask questions about statutory construction: we limit this opinion to those questions. Your questions are: 1. Are attorneys' feesto date of judgment forthe collection ofopen accounts and debts subject to tax?

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2. Are attorneys' fees for filing bankruptcy claims subject to tax? 3. Are charges by attorneys and others inconnection with land foreclosures subject to tax? ?

4. Are attorneys' fees for enforcing contracts where there isa subject to tax? money dispute

5. Ifan attorney charges for enforcing a judgment inacase inwhich hewas 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 behelpful. -,

The extension of the sales tax to debt collection services was part of House BillNo. 61, the omnibus tax measure adopted by the second called session of the 70th Legislature. OnJuly 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 104voting yea and 14 voting nay. House Journal, 70th Leg., 2dC.S., at 181 (1987). A second amendment from the floor on the same subject, offered byRepresentative Al Luna, likewise was tabled, with 116voting yea and 2%voting nay. H.J.,,70th Leg., 2dC.S., at 219 (1987).1 The Senate then considered Rouse Bill No. 61and 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: itwas reported out of committee, but not considered on the floor.

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C of law, denominated as 81professional." See aenerallv Bill

Analysis toH.B. No. 61,prepared forHouse Ways andMeans Committee, filed inBill File toH.B. No. 61, Legislative Reference Library.
TheHouse refused to concur inthe Senate version of the substitute, see H.J., 70th Leg., 2dC-S., at 335 (1987)tand aconference committee ofmembers fromthe two houses was appointed to fashion acompromise. 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 Codewas given brief attention, both inthe conference committee deliberations and on the floors of theHouse 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 inthe debates ineither house on the conference committee version of House Bill No. 61before final passage came during a colloquy on the floor of theHouse of Representatives between Representative DanMorales, the House sponsor of House Bill No. 61and amember of the conference committee that produced section 151.0036, andRepresentative Greg Luna. We set out the exchange in itsentirety below.

Representative Luna: On these debt collection service: ifanattorney sends a letter for adebt? Representative Morales: No, thatwould 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 aclaim. Representative Morales: Repeat that again. Representative Luna: Ifanattorney proceeds to represent a client on a foreclosure on

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real property --would that be fax? subject to
Representative Morales: No, Greg, and I guess that Iwould refer you toparagraph B of that, of thedebt collection provision, where it indicates that adebt collection service does not include collection of a judgment by an attorney orby a partnership orprofessional corporation of attorneys that attorney represented theperson in suit. if the
Representative Luna: But what bothers Dan isthat a lot of collection isdone attorneys that does not result in judgment. :; a
Representative Morales: That isright. Representative Luna: And so,' even if does not, itwould notbe subject. . . . it ?

Representative Morales: Greg, Ithink, 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 notbedebt service collection. Because it would not be focused upon collecting the debt butwould bedeemed tobe an establishment of the existing claim. Representative Luna: But, sometimes YOU know on adebt and on anaccount -and I don't do thismuch, Iamtrying to clarify it fora later purpose -attorneys do send letters on accounts that are due andmost of them are resolved without a judgment. Representative Morales: Greg, Iguess maybe the easiest way for us to think about that isthat ifthe lawyer is doing what debt collectors do and that isall 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 -.

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judgment he would fall, that individual would fall,under the exception under paragraph B. Representative Luna: Many general practitioners do this asaminor, incidental item of their practice. Representative Morales: Well they are debt collectors, they are debt collectors and subject to that provision of thebill. 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 anattorney 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 fromHouse Hearing Reporter).
We think that the legislative intent behind this hastily-drafted and ambiguous statute is most clearly reflected inRepresentative 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 taxwould apply to a lawyer's services if, the lawyer "isdoing 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 lawyerwould be engaged ina taxable activity & when engaged in debt-collection activity that anon-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 aproposition to apply the sales tax to legal feesgenerally. Although we think it is possible to identify the legislative intent behind section 151.0036, the legislature did notprovide any guidelines fordetermining when a lawyer "isdoing what debt collectors do and that isall."

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The practical difficulty with applying that standard is that a lawyer's services to acreditor client may include, inthe same instance, services that only a lawyer can render aswell as services that non-lawyers, such as debt collectors, can render. See aenerally Note, Collection Aaen iesand th Unauthorized Pra tice of La ProfC 155 (19;6); 27CA.L.R.3d 1J. Legal Annot., :i52 (1969); Wolfram, Modern Legal Ethics, 5844 (1987). See also Attorney General Opinion WW-312 (1981) (corporation may notbe represented incounty court or county court at law on action to collect debt by an officer who is not lawyer). For example, a lawyermight 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 onhis legal skills and knowledge; might be that further attempts to collect the debt or to adjust the claim might beunfruitful because of various legal orpractical impediments or that additional efforts might simply be too costly in light of thebenefits even a complete victory inthe courtsmight bring. Although the paperwork ultimately produced by the lawyer might be similar to thepaperwork produced by anon-lawyer debt collector, the lawyer certainly would have practiced law aspart 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.
Ifapart of a lawyer's services in situations like the onedescribed above were tobe 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. Itwould be absurd forthe legislature to,put the comptroller inthat 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 isclear that the lawyer is acting in a transaction asnothina more than adebt 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 inwhich your

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office can demonstrate that a lawyer is not providing legal services at allbut is, forexample, 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 isnot providing legal services and isacting solely as adebt collector. Very truly yo 

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JIM MATTOX Attorney General ofTexas
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

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