Were claim-adjustment services sold to the National Flood Insurance Program exempt from Texas sales tax as a federal transaction?

Plain-English summary

The firm adjusted claims under policies issued through the National Flood Insurance Program. Claim-adjustment services were generally taxable, but the buyer asserted federal immunity.

Texas exempted the federal government, corporations wholly owned by it, and unincorporated federal instrumentalities under Section 151.309. The Comptroller said the submitted NFIP transaction appeared exempt if the agency fit one of those categories.

The seller still had to obtain an exemption certificate because Section 151.054 presumed sales taxable without appropriate proof.

The exemption did not automatically extend to private insurance companies issuing flood policies under federal program guidelines. A private carrier was not one of the listed federal entities merely because it participated in the program.

What this means for you

The historical answer required both a qualifying federal buyer and documented proof. Program affiliation alone did not exempt a private company.

Common questions

Were the NFIP services exempt? They appeared exempt if the buyer was a qualifying federal entity.

Was an exemption certificate required? Yes.

Were private flood carriers exempt? Not merely because they operated under NFIP guidelines.

Citations and references

• Tex. Tax Code § 151.309 (Vernon 1982) — federal entities exemption.
• Tex. Tax Code § 151.054 (Vernon Supp. 1988) — presumption of taxability and proof of exemption.
• 34 Tex. Admin. Code Rule 3.287 — historical proof-of-exemption rule.
• Draft 34 Tex. Admin. Code Rule 3.355, issued December 10, 1987 — 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/8801L0868C01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
COMPTROLLER January 28, 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.

Your firm adjusts claims made against policies issued through the
National
Flood Insurance Program. Since Oct. 1, 1987 you have attempted to assess
sales tax on claims processed for this agency, but the agency refuses to
pay
the sales tax. A representative of the National Flood Insurance Program
has
claimed the state can not levy a tax on their program because it is
federally created.

The federal government itself, corporations wholly owned by the federal
government and "unincorporated instrumentalities" of the federal
government
are exempt from the payment of state taxes. TEX. TAX CODE ANN. Sec.
151.309
(Vernon 1982). If the agency to which you are selling your claim
adjustment services meets any one of the three descriptions above, the
transaction would be exempt from tax. However, all sales are presumed to
be
taxable unless the appropriate proof of exemption, an exemption
certificate,
is obtained by the seller. Sec. 151.054 (Vernon Supp. 1988)

Although it appears from the information you submitted that the
transaction
with the National Flood Insurance Program you inquired about would be
exempt
from sales tax, it doesn't follow that all claims concerning flood
insurance
will be exempt. The federal legislation creating the National Flood
Insurance Program also provides for private companies to issue insurance
under the guidelines of this program. Such private carrier would not be
exempt as they would not be one of the federal entities described above.

I'm enclosing two rules for your information. One rule discusses the
requirements for gathering proof of exemption, Comptroller's Rule 3.287
(Effective date 11-3-87). The other is a draft of the rule which would
cover
insurance services in particular, Rule 3.355 (Issued 12-10-87). 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