§ 60.10. Adjustment and collection services.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Adjustment services—An activity performed by a collection agency relating to the reconciliation or settlement of a debt on behalf of a creditor.
Administrative supplies—(i) Tangible personal property which is consumed in one of the following manners:
(A) Used but not transferred by a vendor in the performance of this service.
(B) Transferred by a vendor to another party in connection with the performance of the vendor’s services when the property is not a critical element of the service.
(ii) Examples of this property includes sales invoices, receipts, contracts, estimate sheets, confirmations or other similar items.
Collection agency—A person who performs adjustment or collection services on behalf of a creditor.
Collection services—An activity relating to the collection of a debt which involves a collection agency, a creditor and a debtor.
Creditor—A person to whom a debt is owed.
Debt—An obligation to pay money or other consideration owed by a debtor to a creditor, including current account receivables, interest, fines, penalties and other charges.
Debtor—A person who owes a debt to a creditor.
Doing business in this Commonwealth—Maintaining a place of business within this Commonwealth as defined at § 56.1 (relating to maintaining a place of business within this Commonwealth).(b) Scope. Effective October 1, 1991, the sale at retail or use of adjustment or collection services is subject to tax when the creditor is doing business in this Commonwealth and the debtor’s address referred for adjustment or collection services by the creditor is in this Commonwealth. The status as to whether the creditor is doing business in this Commonwealth and the address of the debtor in this Commonwealth is determined at the time the account is placed with the collection agency. The location of the collection agency does not have an effect on the taxability of the transaction.
(1) The creditor is presumed to be doing business in this Commonwealth if the debtor is located in this Commonwealth. A collection agency shall obtain a valid exemption certificate from a creditor who claims he is not doing business in this Commonwealth when the debtor is located in this Commonwealth.
(2) Adjustment and collection services provided to a Pennsylvania creditor against debtors located outside of this Commonwealth are not subject to tax.
(3) The site of the origination of the debt has no effect on whether the adjustment or collection service is taxable.
(4) A multistate creditor who does business in this Commonwealth would only be liable for adjustment and collection services performed against debtors located in this Commonwealth.
(5) Adjustment and collection services against multistate debtors are taxable when performed on behalf of a creditor who is doing business in this Commonwealth and the debtor’s address referred by the creditor for adjustment or collection is in this Commonwealth. The determination of the debtor’s address in this Commonwealth is made at the time the account is placed with the collection agency. Examples are as follows:
(i) A Maryland collection agency is hired to collect debts owed to a Maryland company which is doing business in this Commonwealth and the debtors are located in this Commonwealth. The charge for the service against Pennsylvania debtors is taxable.
(ii) A Pennsylvania company is owed money from a New York company. The Pennsylvania company obtains the services of a Pennsylvania collection agency to collect the debt. The charge for the service against a New York debtor is not taxable.
(iii) A National chain store company with locations in this Commonwealth, hires a Maryland collection agency to collect its debts. Only charges for the collection of debts against debtors located in this Commonwealth are taxable.
(iv) A National credit card company incorporated in Delaware with an office in this Commonwealth hires a Delaware collection agency to collect debts from its delinquent customers. The collection services against the debtors located in this Commonwealth are taxable.
(c) Examples of taxable services. The following are examples of taxable adjustment and collection services:
(1) The attempt to collect or the collection of debts and claims by a collection agency, including current debts such as accounts receivable or bad check charges, regardless of whether money is collected.
(2) Providing of adjustment services in the settling of debts on behalf of a creditor.
(3) Sending notices to debtors for current debts, such as precollection letters, is taxable as a collection service when the debtor’s payment is to be remitted to the collection agency; otherwise, the issuance of precollection letters may be taxable as a secretarial or computer service.
(4) Collection services performed for affiliated companies.
(5) Repossessing of property in connection with a debt owed to a creditor.
(6) Collection services provided by an attorney not in conjunction with, or incidental to, the attorney’s nontaxable performance of a legal service, or rendering of legal advice, which involve the application of legal skills.
(d) Examples of services which are not adjustment and collection services. The following are examples of services which are not adjustment and collection services:
(1) Credit card services provided by a central agency, including a fee charged to the credit card company by a clearinghouse and a fee charged to the retailer in connection with the use of credit cards.
(2) Debt counseling, adjustment services or financial budgeting services to individuals.
(3) Billing or collection of telephone charges by a local telephone company on behalf of other companies.
(4) Charges for points, taxes, insurance, escrow fees and late penalties by financial institutions in connection with loans and mortgages.
(5) Collection of bills on behalf of utility companies when the accounts were not referred for collection but is merely a customer service.
(6) Charges made by a creditor to a debtor for a dishonored check.
(7) Consideration received by the seller in connection with the sale of accounts receivable—factoring. A service fee charged by the seller in connection with the collection of accounts is taxable.
(8) Claims adjustment services performed by an independent adjuster who determines the extent of loss for insurance companies.
(9) Commissions charged for the transfer and collection of funds in connection with the sale or purchase of real or personal property, such as stocks, bonds, real estate or escrow fees.
(10) Issuance of bills or invoices for a creditor but may be subject to tax as a computer service.
(11) Collection services provided by an attorney in conjunction with, or incidental to, the attorney’s nontaxable performance of a legal service, or rendering of legal advice, which involve the application of legal skills.
(e) Purchase price.
(1) Tax shall be imposed on the total fee, contingency fee or other consideration charged or retained for providing adjustment or collection services. Charges representing the reimbursement of expenses incurred in connection with the adjustment or collection services are included in the taxable purchase price.
(2) The tax shall be separately stated on each billing to the creditor. When a collection agency collects debts from debtors located both within this Commonwealth and out-of-State for the same creditor, the collection agency has the option of billing the tax when the collection agency submits a reconciliation statement to the creditor; if the reconciliation statement is submitted to the creditor at least once every 3 months. The reconciliation statement shall set forth the individual payments of each Pennsylvania and out-of-State debtor during the period covered by the reconciliation statement.
(3) If the collection agency elects to charge tax on the reconciliation statement to the creditor, the periodic billings to the creditor shall indicate that the charging of tax will be calculated on the reconciliation statement. Examples are as follows:
(i) A collection agency is to receive 30% of the amount of debt collected. If the collection agency collects $100, the creditor is billed tax on 30% of $100 or $1.80 (30% x $100) x 6%.
(ii) In accordance with the contract of sale, a creditor is permitted to charge the debtor a 20% fee for debts referred to a collection agency. The collection agency is permitted to retain the 20% penalty fee it collects. If the agency collects a $100 debt and $20 penalty fee, the collection agency shall charge $1.20 tax ($20 x 6%) to the creditor.
(iii) A collection agency is to receive a 30% commission on the debt it collects for the creditor. The debt is comprised of a sale transaction amounting to $90 and a $10 charge for insufficient funds. The agency collects the total amount of $100 and shall charge $1.80 tax ($100 x 30%) x 6%.
(f) Exclusions.
(1) Adjustment or collection services are exempt if purchased by qualified charitable organizations, volunteer fire companies, religious organizations and nonprofit educational institutions, except if used in an unrelated trade or business. The services are also exempt if purchased by the Federal government or its instrumentalities; or the Commonwealth, its instrumentalities or subdivisions including public school districts. The manufacturing, mining, processing, public utility, farming, dairying, agriculture, horticulture or floriculture exclusion does not apply.
(2) A collection agency may claim the resale exemption upon its purchase of tangible personal property which is transferred to its purchaser or a third party in the performance of its adjustment or collection services. The agency may also purchase adjustment or collection services from another provider which the agency resells to its customer. The agency may not claim the resale exemption upon its purchase of administrative supplies or the purchase of another taxable service which it may use in the performance of its adjustment or collection services.
(i) The following are examples of property or services which may be purchased exempt for resale when used in the rendition of performing adjustment or collection services:
(A) Adjustment or collection services which are sold to a collection agency for the purpose of selling the services to another collection agency for the purpose of resale.
(B) Paper and envelopes transferred as precollection letters or dunning letters.
(ii) The following are examples of property or services which are taxable when used in the rendition of performing adjustment or collection services.
(A) Administrative supplies.
(B) Computer services purchased by collection agencies and used in performance of adjustment or collection services.
Source The provisions of this § 60.10 adopted January 8, 1993, effective January 9, 1993, 23 Pa.B. 187.
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