               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?



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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




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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."



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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




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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.




                                     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




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