TX 8710L0844D01 Sales and/or Use Tax (State,Local,MTA) 1987-10-30

Were premium-audit services taxable when an independent firm reviewed policyholder records so an insurer could calculate final property or casualty premiums?

Short answer: Yes. Reviewing policyholder financial records and reporting the premium basis was taxable insurance service because Rule 3.355 covered insurance inspections and analysis connected with calculating premiums.

Apply this to your situation

This page answers the general question as of 1987. Ezel answers yours, under current Texas tax law, with citations.

Disclaimer: This is a taxpayer-specific October 1987 Texas Comptroller letter about an independent firm auditing policyholder records so insurers could make final premium adjustments. It says the opinion may change if the facts differ. Its Rule 3.355 insurance-inspection and insurance-analysis classifications and October 1, 1987 context are historical and may have changed substantially; verify current law and the precise audit work. STAR documents may no longer represent current policy even when not marked superseded. Identities are redacted. This summary is informational only and is not legal or tax advice.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The independent firm's premium-audit service was taxable. It reviewed a policyholder's financial records, identified the basis for the premium, and reported that information to the insurance company so the insurer could determine the final premium and bill or credit the policyholder.

Rule 3.355(a) included insurance inspections used to evaluate risks, survey or value property, or establish premium rates or reserves. It also included insurance analysis or research connected with calculating premiums, reserves, rates, refunds, or dividends. The Comptroller placed the described audit within those taxable insurance services.

What this means for you

The historical letter treated back-end premium verification as taxable insurance service even though an independent firm performed it and the insurer made the final premium calculation.

Common questions

Were the premium audits taxable? Yes.

What did the firm do? It reviewed policyholder records and reported the premium basis to the insurer.

Why was that an insurance service? The cited rule included inspections and analysis connected with establishing or calculating premiums.

Citations and references

34 Tex. Admin. Code Rule 3.355(a) (insurance services)

Source

STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
Opinion: https://star.comptroller.texas.gov/view/8710L0844D01

Original ruling text

October 30, 1987

Dear ****:

Thank you for your letter of September 15, 1987, concerning the taxability of
the services you provide.

Section (a) of Rule 3.355 (enclosed) defines insurance services to include
"insurance inspections" which are "activities performed to evaluate risks to
property, to survey or value property in connection with the furnishing of
insurance coverage, to establish premium rates or reserves, or any other
similar activities." Insurance services also includes "insurance analysis or
research" which is "any activity performed in connection with the calculation
of insurance... premiums, reserves, rates, refunds, dividends...or other
similar activities".

You are providing taxable services and you are required to charge tax to your
customers.

A sales tax application packet with related information is being sent under
separate cover.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,

Eddie C. Washington
Tax Policy Division

September 15, 1987

Bob Bullock
Comptroller of Public Accounts
P.O. Box 13528
Austin, TX. 78711

RE: Texas Taxes Are Changing

We have received new information which requires taxation upon certain insurance
services. In reading through the information that was supplied the question has
arisen whether or not our service company falls under the new tax law.

BUSINESS is an independent auditing firm which caters to the insurance
industry. Our purpose is to audit policy holder records so that final premium
adjustments can be made. This activity involves taking a commercial property or
casualty policy, establishing an appointment with the policy holder, reviewing
through financial records to determine exactly what the basis of premium is,
and then summarizing and submitting to a report to the insurance company. Based
on this information, the insurance company will do premium extension, determine
what the actual policy premium should be and either send out a bill or issue a
credit.

We would be interested in knowing if this falls under the new tax law and
whether or not we would be required to assess our customers the sales tax.

In the event that you ruling is that we do fall under this, we will need all
necessary information dealing with the proper collection of sales tax whether
it is collected at the time of invoicing on a credit basis or whether it is
collected at the time the monies are received. We will also need whatever
information that is necessary in order to apply for a taxpayer ID number.

We would appreciate prompt consideration in this matter as is my understanding
that the new law takes effect on October 1st, 1987.

Owner

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