For an engineering firm doing accident reconstruction for insurance carriers, which parts of the work (reports, depositions, evidence storage) are taxable insurance services, and does it matter where the incident happened versus where the client is located?
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This page answers the general question as of 2000. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
An engineering firm performing accident reconstruction had been audited, and the auditor suggested the firm get written confirmation of verbal guidance the Comptroller had given it back in late 1997. The Comptroller's letter confirms accident reconstruction is a taxable insurance service under 34 TAC § 3.355(a)(3) and (b) when performed for consideration for an insurance carrier, policyholder, insured, or others regarding a policy of insurance — and then walks through six specific practices the firm asked about.
The letter confirms: (1) deposition and trial-related activities — preparation, travel, standby time, and expenses — are nontaxable (citing a prior STAR letter, 9711084L); (2) written reports to the client are taxable when performed regarding an insurance policy (citing an Attorney General opinion and two more STAR letters); (3) services are taxable when the incident occurred in Texas, regardless of where the client or carrier is located, as long as the purchaser is an insurance carrier, or (if not a carrier) is doing business in Texas and the insured object is in Texas; (4) conversely, services are nontaxable when the client/carrier is in Texas but the incident occurred outside Texas; (5) storage charges for retaining evidence for a client are nontaxable only if incurred before a report is given to the client — storage billed after the report is delivered, or after deposition or courtroom testimony, is taxable; and (6) services to self-insured clients (as defined in Rule 3.355(a)(8)) are nontaxable even if the client carries a self-insured retention limit before an outside carrier's coverage kicks in.
The letter points the taxpayer to Rule 3.355 on the Comptroller's website and to several other STAR documents by number (9711084L, 8902A0923A03, 8806L1131F03, 9801459L, 8803L0889A01) that can be located under the keywords "forensic engineering" and "accident reconstruction," and offers to send copies on request.
What this means for you
Forensic engineering and accident reconstruction firms serving insurers
Your written reports to clients are taxable insurance services when they relate to a policy of insurance, but deposition/trial preparation, travel, and standby time are not. Track evidence-storage billing carefully: storage charges are only tax-free if billed before your report goes out — once the report (or deposition/trial testimony) is delivered, ongoing storage charges become taxable.
Insurance carriers and self-insured companies buying these services
Where the underlying incident happened controls taxability more than where you're located: Texas-incident work is taxable even for an out-of-state carrier, and non-Texas-incident work is nontaxable even for a Texas-based carrier. If you're self-insured under Rule 3.355(a)(8), the services are nontaxable regardless of any retention limit before outside coverage applies.
Accountants and tax professionals
This letter is a useful multi-point checklist for the insurance-services rule (3.355) — it separately resolves report-timing, incident-location sourcing, and self-insured status, each with its own prior-STAR-letter citation trail worth pulling if you need the underlying reasoning.
Common questions
Q: Are depositions and trial preparation for accident reconstruction taxable?
A: No — preparation, travel, standby time, and related expenses for deposition and trial activities are nontaxable.
Q: Are written reports to the client taxable?
A: Yes, when performed for others regarding a policy of insurance.
Q: Does it matter where the incident happened versus where the client is located?
A: Yes — services are taxable if the incident occurred in Texas regardless of the client/carrier's location, and nontaxable if the client/carrier is in Texas but the incident occurred elsewhere.
Q: When are evidence-storage charges taxable?
A: Only if incurred after a report has been given to the client, or after deposition or courtroom testimony. Storage billed before the report is delivered is nontaxable.
Q: Are services to self-insured clients taxable?
A: No, as long as the client meets the Rule 3.355(a)(8) definition of self-insured, even with a retention limit before an outside carrier takes over.
Q: Can other engineering/forensic firms rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.
Citations and references
Rules and prior guidance:
- 34 Tex. Admin. Code § 3.355(a)(3), (b) (Insurance Services)
- 34 Tex. Admin. Code § 3.355(a)(8), (g) (self-insured definition and treatment)
- 34 Tex. Admin. Code § 3.355(d) (sourcing based on incident location)
- Attorney General Opinion No. JM-1016 (STAR document 8902A0923A03)
- STAR documents 9711084L, 8806L1131F03, 9801459L, 8803L0889A01
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/200009735L
Original ruling text
September 27, 2000
Dear **:
Thank you for your recent letter requesting confirmation of your company's
Texas sales and use tax responsibilities as an engineering firm performing
accident reconstruction.
The performance of accident reconstruction is taxable as an insurance service
when performed for consideration for an insurance carrier, policyholder,
insured or others pertaining to a policy of insurance. See Rule 3.355(a)(3)
and (b) concerning insurance services.
You were recently audited and the auditor suggested that you get written
verification of verbal clarifications I gave you in late 1997 on the following:
- Deposition and trial-related activities are nontaxable. This includes
preparation, travel, standby time, and expenses incurred.
Response: This is correct. See item 8 of the enclosed STAR document 9711084L.
- Reports to the client are taxable.
Response: Yes, when performed for others pertaining to a policy of insurance.
See Attorney General Opinion No.JM-1016 (STAR document 8902A0923A03) and STAR
documents 8806L1131F03 and 9801459L.
- Services are taxable when the incident occurred inside the State of Texas,
regardless of where your client or the carrier is located.
Response: This is correct to the extent the purchaser of the service is an
insurance carrier, or, if not an insurance carrier, the purchaser is doing
(engaged in) business in Texas and the object of the insurance service is
located in Texas. See Rule 3.355(d) and STAR document 9801459L.
- Services are non-taxable when your client or carrier is located inside the
State of Texas and the incident occurred outside the State of Texas.
Response: This correct. See Rule 3.355(d) and STAR document 9801459L.
- Storage charged for retaining evidence for a client is nontaxable.
Response: This is correct provided the charges are not incurred before a report
is given to a client. If the storage charges are incurred after a report is
given to the client or after a deposition or courtroom testimony is given, then
the charge for storage is not taxable.
- Self-insured clients are nontaxable, even if they have limit before an
insurance carrier assumes the claim.
Response: This is correct when provided to a self-insured client as defined in
Rule 3.355(a)(8). See Rule 3.355(b) and (g), STAR documents 9711084L and
8803L0889A01.
The referenced Comptroller rule is available at:
. Click on
State Tax Rules and scroll down to Rule 3.355.
The referenced STAR documents may be found at:
. You may locate the
documents under the key words "forensic engineering" and "accident
reconstruction."
You may request a copy of any of the referenced STAR documents that you are
unable to locate by calling our Tax Policy Dissemination Section toll free at
1-800-531-5441, extension 5-0204 or 5-9843.
This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.
You may call me toll free 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. My email address is
. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825.
Sincerely,
Eddie C. Washington
Tax Policy Division
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