Did an insurance company's gross-premiums-tax exemption also exempt its purchases from Texas sales and use tax?

Plain-English summary

An insurance company challenged sales-tax payments by relying on exemption language in Insurance Code Article 4.11, Section 9.

The internal legal memorandum relied on Texas Attorney General Opinion M-188 (1968), which held that insurance companies paying a gross-premiums-receipts tax remained subject to sales and use tax. The exemption language in former Articles 7064 and 7064a concerned other taxes levied annually—occupation, privilege, or franchise taxes. Sales tax was different because it was a transaction tax unrelated to the insurance business and required a specific exemption.

The Legislature later moved the provisions into Insurance Code Articles 4.10 and 4.11 without changing the language. The memo treated that reenactment as implicit approval of the established interpretation, citing Lumbermen's Underwriters v. State Board of Insurance, 502 S.W.2d 217, for the weight given to agency construction and unchanged reenactments.

Common questions

Did the gross-premiums-tax provision exempt insurer purchases from sales tax? No.

What taxes did the memo say the exemption covered? Annual occupation, privilege, or franchise taxes.

Why was sales tax different? It was a transaction tax and lacked a specific insurer exemption.

Citations and references

• Texas Attorney General Opinion M-188 (1968) — insurers paying gross-premiums tax remained subject to sales and use tax.
• Texas Insurance Code art. 4.11, § 9 — claimed exemption discussed in the memo.
• Former V.A.T.S. arts. 7064 and 7064a — predecessor provisions.
• Lumbermen's Underwriters v. State Board of Insurance, 502 S.W.2d 217 (Tex. Civ. App. 1973) — reenactment and agency-construction principle quoted in the memo.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8606L0811E08

Original ruling text

INTEROFFICE BOB BULLOCK
MEMORANDUM COMPTROLLER OF PUBLIC ACCOUNTS

To: Mona Shoemate
From: Susan Hafeli
Date: July 11, 1986

Re: Insurance company challenge to sales tax payments based on
claimed statutory exemption as found in V.A.T.S. Insurance Code,
Article 4.11, Section 9.

Attached is a copy of a 1968 Attorney General Opinion, No. M-188, which
holds that insurance companies paying a gross premiums receipts tax
are subject to the sales and use tax.

Vernon's Ann. Civ. St., Article 7064, the language of which was in ques-
tion, applied to "insurance companies other than life, other than fra-
ternal benefit associations, and other than nonprofit group hospital
service plans". Article 7064a tracks the exemption language of Article
7064, but with reference to domestic life, accident, and health insurance
organizations.

The Attorney General's opinion noted that Article 7064 dealt with the
gross premiums receipts tax, an annual tax. It then interpreted the
language of that article to exempt certain insurance companies from any
other taxes which might be levied annually: an occupation, privilege,
or franchise tax.

The sales tax, however, is of an entirely different nature. It is a
transaction tax which bears no particular relationship to the business
of insurance. Exemptions must be specifically provided for the absence
of an exemption is significant.

In 1981, 13 years after the Attorney General's opinion on this matter,
and 20 years after enactment of the sales tax, the Legislature
transferred
Articles 7064 and 7064a, among others, to the Insurance Code (4.10 and
4.11, respectively). Neither was amended.

This lack of amendment acts to affirm the Attorney General Opinion. In
1973, the Court of Civil Appeals noted that when the legislature, aware
of an agency interpretation, retains statutory language without
modification
it in effect approves it:

These amendments were adopted with knowledge of a former Attorney
General's construction of the statute holding appellant exempt
from the tax and with knowledge of the resulting departmental con-
struction. A canon of statutory interpretation is that great weight
should be given to the construction placed upon the statute in ques-
tion by the agency charged with its implementation. . . . In addition,
when a statute is reenacted without material change, it is generally
presumed that the legislature knew and adopted or approved the inter-
pretation placed on the original act, and intended that the new enact-
ment should receive the same construction as the old one. Lumbermen's
Underwriters v. State Board of Insurance, 502 SW2d 217.

This case, coincidentally, also involved exemption language found in
Article 7064.

Thus, since at least 1968 it has been the agency's position that the
exemption language refers to annual, not transaction, taxes. This
interpretation was implicitly affirmed when the legislature reenacted,
without change, Articles 7064 and 7064a as Articles 4.10 and 4.11
of the Insurance Code.