Were services performed under insurance policies for unauthorized or surplus-lines insurers taxable Texas insurance services?

Plain-English summary

The Comptroller concluded that the described activities were "insurance services" under Rule 3.355 because they were performed pursuant to insurance policies and for insurance carriers. Rule 3.355(d), as described in the letter, imposed sales and use tax on insurance services performed in Texas when the customer was an insurance carrier.

The letter said Rule 3.355 defined an insurance carrier to include an insurer engaged in the business of insurance that was licensed, operated under, or required to be licensed or operate under the Insurance Code. It therefore treated an unauthorized insurer engaged in the insurance business as an insurance carrier. The letter also discussed surplus-lines insurers as unauthorized insurers meeting Article 1.14-2's eligibility and compliance requirements.

Under Rule 3.355(g), the provider had to presume its insurance services were taxable unless it obtained a properly completed, valid exemption certificate. For an insurer not doing insurance business in Texas, the certificate should state that fact. A separate certificate was required from each such insurer, but not for every individual survey. The provider could not accept a certificate from an insurer it knew was doing insurance business in Texas.

The Comptroller also rejected reliance on Tax Code Section 151.3111(a). It reasoned that insurance services were performed pursuant to an insurance policy, which was intangible, and could consist merely of reviewing records or another adjuster's damage estimates.

What this means for you

For the services described, taxability turned on whether the work qualified as insurance services, whether it was performed in Texas, and whether the customer was an insurance carrier doing insurance business in Texas. Licensing status alone did not remove an unauthorized insurer from the carrier definition.

A provider claiming an exemption for an insurer not doing business in Texas needed a valid certificate from that insurer and could not ignore facts showing the insurer actually conducted insurance business in the state.

Common questions

Were the described services taxable? Yes, when performed in Texas for an insurance carrier doing insurance business in Texas.

Could an unlicensed insurer still be an insurance carrier? Yes. The letter said an unauthorized insurer engaged in the business of insurance fell within the rule's carrier definition.

How could the provider support an exemption for an out-of-state insurer? It needed a properly completed exemption certificate stating that the insurer was not doing insurance business in Texas.

Was a new certificate required for every survey? No. The letter required a certificate from each insurer, but not a separate certificate for each survey.

Did the tangible-personal-property service exemption apply? No. The Comptroller said the insurance services were performed pursuant to an intangible insurance policy, not on statutorily exempt tangible personal property.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a), (b), (d), and (g) — insurance-services definitions, taxable services, and exemption-certificate rules discussed in the letter.
• Texas Insurance Code Articles 1.14-1 and 1.14-2 — unauthorized and surplus-lines insurers.
• Texas Tax Code Section 151.3111(a) — exemption the Comptroller found inapplicable.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9108L1125G04

Original ruling text

August 13, 1991

Dear *****:

Thank you for your patience in awaiting this reply to your letter
of January 29, 1991, concerning the taxability of the services
that your firm performs.

As I explained to you in our previous telephone conversations, I
was waiting for a decision on a similar issue. The decision has
been made.

The services or activities described in your letter are insurance
services as that term is defined under section (a)(1)-(6) of Rule
3.355 (Insurance Services) because they are performed pursuant to
a policy or policies of insurance as prescribed in section (b) of
the rule. In addition to the foregoing, the services are being
performed for an insurance carrier.

An "insurance carrier" is defined in section (a)(7) of the rule
as "every insurer engaged in the business of insurance that is
licensed or operated under or is required to be licensed or
operate under the provisions of the Insurance Code." (Emphasis
added.) Section (d) of the rule imposes a sales and use tax on
insurance services performed in this state when the customer for
whom the services are provided is an insurance carrier.

Article 1.14-1 of the Texas Insurance Code defines an "unauthorized
insurer" as an unlicensed insurer that is conducting the business
of insurance as defined in the Insurance Code. However, a
"surplus lines insurer" is defined as an unauthorized insurer that
is not licensed in this state but meets the eligibility requirements
and otherwise complies with Article 1.14-2 of the Insurance Code.

This means that any unauthorized insurer that engages in the
business of insurance as defined in the Insurance Code is an
insurance carrier as that term is defined in section (a)(7) of the
rule.

Section (g) of Rule 3.355 states that a provider of insurance
services must presume that the services provided are taxable unless
the service provider gets a properly completed and valid exemption
certificate from the purchaser claiming an exemption. For an
insurer that is not doing insurance business in Texas, the exemption
certificate should state that the insurer is not doing insurance
business in Texas.

An exemption certificate must be obtained from each insurer that
is not doing insurance business in this state. A separate exemption
certificate will not be required for an insurer for each survey.

Section 151.3111(a) of the Texas Tax Code which exempts a service
that is performed on tangible personal property that is exempt
by statute does not apply. Insurance services are performed
pursuant to a policy of insurance, an intangible. Insurance
adjustment services may be rendered merely by reviewing records or
damage estimates performed by another adjustor.

Please note that an insurance service provider may not accept an
exemption certificate from an insurer that the service provider
knows is doing insurance business in Texas.

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

You may call toll free 1-800-252-5555 if you have any questions or
need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division