Did this Texas letter definitively decide whether attorneys and law-firm staff owed sales tax on debt collection or insurance-claim services?

Plain-English summary

The published Comptroller response is narrow and incomplete. Executive Counsel Wade Anderson thanked the requester for information about the Texas Workers Compensation Assigned Risk Pool and said it had been circulated to the tax policy committee.

Anderson then said the Attorney General had issued an enclosed opinion involving the taxability of attorneys for “tax collection purposes.” He said the opinion would “in all likelihood” also apply to attorney services connected with insurance claims because it was written broadly.

The enclosure is not included in the published text. The response does not identify the Attorney General opinion, quote its conclusion, or expressly say whether the attorney services were taxable or exempt.

What this means for you

This document cannot support a definitive tax answer. It records only the agency counsel's tentative view that another, missing opinion likely extended from attorney tax-collection work to attorney insurance-claim work.

Common questions

Did the letter hold that attorney debt-collection services were taxable? The published text does not say. It refers to an enclosed Attorney General opinion that is missing.

Did it decide whether attorneys adjusting insurance claims were taxable? No definitive conclusion appears. Counsel said the missing opinion would “in all likelihood” apply.

What did the requester ask about? The attached request discussed claims investigation, handling, processing, supervision, settlement, workers' compensation servicing companies, attorneys, and nonlawyer law-firm staff.

Are the requester's descriptions agency findings? No. They are statements and arguments in the incoming correspondence.

Citations and references

• The response mentions an enclosed Attorney General opinion but does not identify it by number or include its text.
• No statute or administrative rule is cited in the Comptroller's response.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0847B01

Original ruling text

BOB BULLOCK
Comptroller of Public Accounts
Austin, Texas 78774

December 2, 1987

Dear ***;

I appreciate very much your sending me your letter and information
concerning the Texas Workers Compensation Assigned Risk Pool. I have
circulated this information to the members of the tax policy committee
for their review.

In regard to your comments concerning attorneys, the Attorney General
has just issued the enclosed opinion involving the taxability of
attorneys
for tax collection purposes. In all likelihood, this would also apply to
services performed by attorneys in connection with insurance claims
because of the broad manner in which it is written.

Thanks again.

Sincerely,
Wade Anderson
Executive Counsel

November 23, 1987

CERTIFIED MAIL
RETURN RECEIPT REQUESTED

Mr. Wade Anderson
Executive Counsel
Office of the Comptroller of Public Accounts
111 East 17th Street
Austin, Texas 78774

Dear Mr. Anderson:

Thank you much for your letter of November 12, 1987 which
was a most prompt reply to my letter of November 5, 1987.
While your reply did very little to soothe my wounds we
certainly appreciated the answers we received from you as
they will enable us to more accurately levy and collect the
tax.

Further, your assurance that our records and procedures will
be audited in the near future by members of your office will
enable us to sleep a little better. I have already been
contacted by your Mr. Ed Collins, Regional Audit Director
who very courteously advised me that our request had been
passed to him by Audit Director Harold Lee for prompt
action. Mr. Collins was most courteous and assured me that
the manager of one of his audit teams will be contacting us
shortly to arrange an appointment to review our records and
procedures. Thank you again for this prompt action.

Your letter invited me to provide any additional
information relative to the Texas Workers Compensation
Assigned Risk Pool (hereinafter referred to as the "Pool").
Attached you will find a copy of the Rules and Regulations
and By-Laws of the Pool which I believe you will find of
interest. Next attached please find a copy of page 1 of the
Austin Insurance Report dated September 1, 1987 dealing with
the operation of the Pool. Please note the reference to
"servicing fees paid to carriers".

The Pool is comprised of some 550 insurance carriers writing
workers compensation insurance coverage in Texas. From this
group of 550 insurance carriers a number of "Servicing
Companies" are selected. At the present time there are 10
"Servicing Companies" and a list of those is attached.

When a workers compensation risk is submitted to the Pool
for coverage that individual risk is assigned to one of the
Servicing Companies and that company will write the
insurance policy covering that particular risk. This is a
"front" because the Pool pays all of the losses/claims and
expenses incurred by this risk including legal expense.
The only expense not paid by the Pool is that expense for
"Administrative Services" which encompasses certain
insurance services for the risk which are performed by the
Servicing Company. It is my understanding that most of the
"Administrative Services" performed by the Servicing Company
are the investigation, handling, processing, supervision and
settlement of claims. The Servicing Company is paid 30% of
the premium for providing these Administrative Services and
this payment is made "up front" and the Servicing Company
receives this fee without knowing how much, if any,
Administrative Service they will be required to perform.
The remaining 70% of the premium is retained by the Pool,
less a very small commission paid to the producing insurance
agent, and these monies retained by the Pool are used for
the cost of operating the Pool, payment of losses and
expenses etc. If the Pool suffers a deficit (and it always
does) that deficit is paid on a prorated basis through an
assessment made against all 550 members of the Pool. For
1986 the amount of the deficit assessed against all 550
members amounted to $182,000,000. In summary all workers
compensation insurance risks written by the Pool are insured
by the Pool and not insured by the Servicing Company
because the losses/claims are paid by the Pool and its 550
members. The only expenses not paid by the Pool are those
for Administrative Services which are assumed by the
Servicing Company in exchange for 40% of the premium paid to
them in advance and prior to the need to provide any
Administrative Services.

Frankly, this arrangement between the Pool and the Servicing
Company would seem to parallel the example I used in
question #4 of my letter dated November 5, 1987. In response
to my question #4 you advised me that such an arrangement
would not exempt our services from the Sales Tax. I don't
understand the difference. This would seem to be an
inequity and a contradiction in the planned regulation and
enforcement of the Sales Tax.

The arrangement between the Pool and the Servicing Companies
is not unique. In Texas there are many insurance carriers
who engage in the business of writing an insurance policy
for an individual insurance risk but the risk pays all of
the claims/losses and expenses including legal expense.
Similar to the operation of the Pool, the insurance carrier
who has issued this "front" policy performs only the
Administrative Service for the risk and in exchange for
this activity the insurance carrier receives a percentage of
the actual premium. In other words, the insurance carrier
does write an insurance policy but they do not pay the
losses and claims and legal expense. The insurance carrier
simply receives a fee in the form of a percentage of the
premium in exchange for certain administrative services
which are in the majority the activity of investigating,
handling, processing and settling claims for that risk. The
monies received by the insurance carrier in this type of
arrangement are not a part of the premium. What the
insurance carrier receives is a fee which is based on a
small percentage of the premium. In an arrangement where a
risk actually pays all the claims and losses and the
insurance carrier merely receives a fee for handling,
investigating, processing and settling the claims why would
this fee not also be subject to the Sales Tax?

The question of whether or not the sales tax will apply to
the investigation, handling, processing and settlement of
insurance claims on behalf of insurance carriers if
performed by attorneys, law firms and non-lawyer members of
their staff is a question that continues to plague us.

I understand you still await an opinion from the Attorney
General relative to the application of the tax on "Debt
Collection Services" provided by attorneys. I still don't
understand the correlation. An attorney, law firm and a
non-lawyer staff employee of a law firm is not collecting a
debt when servicing an insurance claim for an insurance
carrier.

I have confirmed knowledge of several attorneys and law
firms who are continuing to handle insurance claims
(performing the same identical service we perform) who are
not as yet making any effort to levy or collect the sales
tax for their services. Please furnish me the definition
used by your office for the phrase "the practice of law".

Not a day passes that we fail to visibly observe non-lawyer
staff members of legal firms engaged in the investigation,
handling and settlement of insurance claims on behalf of
insurance carriers and yet we again have confirmed
information that these law firms are not making any effort
to levy or collect the tax for the services being performed
by non-lawyer members of their staff. I would not
understand an exemption granted to a licensed attorney for
performing the same service we perform but I certainly do
not understand how these services performed by a non-lawyer
could be exempt.

Will your requested opinion from the Attorney General be a
matter of public record? If yes, would you please advise me
how I might ascertain when this opinion is rendered and how
I might secure a copy? Also, will your office issue a
clarification on this issue? If so, is there a way I may
learn when such a clarification is issued and may I receive
a copy thereof? Actually, the question of proper
application of the Sales Tax when the services are performed
by a law firm is twofold. Is the service of investigating,
handling and settling insurance claims on behalf of
insurance carriers performed by licensed attorneys exempt
from the Sales Tax? Is this same service when performed by
a non-lawyer staff member of a law firm exempt from the
sales tax?

I am seeking fairness and equity. It hardly seem equitable
if a licensed attorney, a non-lawyer staff member of an
attorney and/or an insurance carrier providing claims
service for a fee will be granted an exemption from the
Sales Tax while performing the exact same service our firm
provides.

Please furnish copies of this correspondence to those
members of your staff you deem appropriate. Let me conclude
by again thanking you for your prompt reply to my previous
letter, apologizing for all the trouble I cause and
expressing my interest in receiving your answers to the
questions submitted in this letter.

Respectfully submitted,