Were property-insurance claim measurement, documentation, investigation, and report services taxable when the policyholder paid the firm?

Plain-English summary

The firm measured and documented property-insurance claims. Its staff reviewed case facts, prepared a claim, and submitted it for an insurance adjuster's review. The policyholder paid the firm a percentage of the agreed settlement.

The Comptroller said the work was taxable under Section 151.0039 as insurance loss or damage appraisal and insurance claims adjustment or processing. Proposed Rule 3.355 included activities to supervise, handle, investigate, pay, settle, or adjust claims or losses and did not distinguish between a firm paid by a carrier and one paid from a settlement.

What this means for you

Under the historical law, the nature of the claims work controlled. Payment by the policyholder rather than the insurer did not remove the service from the taxable classification.

Common questions

Were the claim documentation and reports taxable? Yes.

Did it matter that the policyholder paid the fee? No.

How was the fee calculated? As a percentage of the agreed settlement.

Citations and references

• Tex. Tax Code § 151.0039 (Vernon Supp. 1988) — insurance support services.
• Proposed 34 Tex. Admin. Code Rule 3.355, issued December 10, 1987 — claims adjustment or processing.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0864A04

Original ruling text

January 23, 1988

Dear*:

On behalf of Mr. Bullock, I hope you'll accept my apology for the delay
in
answering your question involving changes in the sales tax law. This
isn't
the way we normally do business.

Our people were, and still are, swamped by a deluge of inquiries as they
attempted to interpret provisions of the new law and draft rules which
would
not adversely impact businesses. In many instances, an answer to a
question
just wasn't available when the question arrived.

In your letter you state that your firm provides a "technical service
that
measures and documents property insurance claims." In order to do this,
your personnel review the facts of the case, then prepare and submit a
claim
for review by an insurance adjuster. Your fee, paid by the policy
holder,
is a percentage of the agreed-upon settlement. The new tax law which
went
into effect on Oct. 1, 1987 makes taxable such insurance support services
as
"insurance loss or damage appraisal" and "insurance claims adjustment or
claims processing." TEX. TAX CODE ANN. Secetion 151.0039 (Vernon Supp.
1988) The
investigation and claims reports prepared by your firm appear to fall
squarely within the terms of the new law. The amplified decision of the
claims work that appears in the proposed Comptroller's rule also includes
the type of work your company performs, without making any distinction
between claims processors paid by a carrier and those paid out of a
settlement. In that proposed rule, insurance claims adjustment or claims
processing include "any activities to supervise, handle, investigate,
pay,
settle, or adjust claims or losses." Comptroller's Rule 3.355. (Issued
12-10-87)

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

Please feel free to contact me if you have additional questions. You may
write me, or call toll free 1-800-252-5555 from anywhere in Texas or
phone
512/463-4600.

Sincerely,

Eddie Washington
Tax Policy Division