Were an insurance company's separately contracted workplace-safety and loss-prevention consulting services taxable in Texas?

Plain-English summary

An insurance carrier planned to sell safety engineering and loss-prevention consulting under contracts separate from its insurance policies, including audits, accident analysis, training, motor-vehicle-record checks, and extra-hazardous-employer consultations.

The Comptroller said the described services—except industrial hygiene—fell within Rule 3.355's insurance-service definitions. They were taxable when performed for an insurance carrier, its insureds or policyholders, or others in connection with insurance policies. The letter did not separately decide the tax treatment of the industrial-hygiene work it excluded from those definitions.

As an insurance-service provider, the company had to presume its services were taxable unless a client supplied a properly completed exemption certificate stating a valid reason, such as that the client was self-insured.

Educational safety materials transferred as part of a taxable service could be bought from suppliers with a resale certificate under Rule 3.355(h).

What this means for you

Safety consultants affiliated with insurers

Putting consulting in a separate contract did not by itself remove it from the insurance-service category. The relationship to an insurance policy and the customer mattered.

Accountants and tax professionals

Keep valid exemption certificates for nontaxable clients. The ruling instructed the provider to treat services as taxable by default without that documentation.

Common questions

Were loss-prevention and safety-engineering services taxable? Yes, when performed in the policy-related circumstances described in Rule 3.355(b).

Did a separate consulting contract make them nontaxable? Not by itself.

What about industrial-hygiene services? The letter said they did not fall within the cited insurance-service definitions but did not separately announce their tax treatment.

Could educational materials be bought for resale? Yes, when transferred to clients as part of the taxable service.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a), (b), and (h) (insurance services and transferred property)
• Texas Workers' Compensation Act, Chapter 164, § 7.04 (extra-hazardous employer consultations described by requester)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1162D04

Original ruling text

February 20, 1992

Dear **:

Thank you for your letter of January 2, 1992, concerning the
taxability of the various consulting services that your company
provides.

Insurance services are defined in section (a)(1) through (6) of
Rule 3.355 - Insurance Services. The services described in your
letter, with the exception of industrial hygiene services, fall
within the definitions contained in sections (a)(3), (a)(5), and
(a)(6).

These services are taxable as insurance services when they are
performed for an insurance carrier, its insured, policyholders or
others pertaining to a policy or policies of insurance. See
section (b) of Rule 3.355.

Your company is not required to pay sales tax on educational
safety material transferred to clients as part of a taxable
service. A resale certificate may be issued to suppliers when
purchasing such property. See section (h) of Rule 3.355.

As a provider of insurance services, your company is to presume
that all services are taxable unless the client issues a properly
completed and valid exemption certificate. The exemption
certificate must state the reason why the services are not taxable,
e.g. the client is self-insured.

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

January 2, 1992

Comptroller of Public Accounts
Capitol Station
Austin, Texas 78774
ATTN: Tax Correspondence

Re: Sales Tax

Dear Sirs:

I have had telephone discussions with both Mr. Phillip Knisely
and Ms. Cindy Pritchett of the Comptroller's Office. They have
answered a question we have concerning whether my company should
charge sales tax on a certain part of our operations. I need to
obtain some documentation of your answer for our records.

Ms. Pritchett indicated I should write up a specific description
of the operation in question and send it to your attention for a
return written confirmation from you on whether or not we should
charge sales tax. The description and question is attached to
this cover letter.

If you have any questions or need clarification concerning the
description of this operation, please call me at (214) 760-6625.

Thank you,

BACKGROUND:

***** Company is an insurance carrier. As such, we
normally must charge sales tax for "insurance services" including
loss or damage appraisal, claims adjusting, loss prevention
measures (safety engineering), etc. It is my understanding the
sales tax applies to workers' compensation, general liability
and auto lines of business.

We now are unbundling these services, separate from the usual
insurance coverages.

DESCRIPTION OF OPERATIONS:

Our safety engineering department/division is now providing
safety consulting services to clients who are not insured by any
of our group of companies. These services are provided on a
contract basis. These clients may or may not have insurance
coverage elsewhere.

Our consulting services are as follows:

Consultation with client management and recommendations offered
in written reports to help the client implement their safety
plan or program. This may include a safety audit or program
evaluation. These services are charged as time and expense.

Surveys or studies of operations in progress are conducted and
corrective measures are recommended in writing to client
management. This is also charged as time and expense.

We may perform analyses of accident data using records of
accidents provided by the client. We may also investigate
serious or catastrophe type accidents when requested by client
management. This is charged as time and expense.

Industrial hygiene services include field sampling of air,
noise, asbestos, lighting, etc., with analytical work performed
in our own laboratory. The results are presented to client
management in a written report. The field work is billed on
time and expense. The laboratory work is billed on a per sample
analyzed basis.

We may participate in safety meetings through presentation of
talks, demonstrations, or visual aids. This training on-site is
at time and expense. We also conduct seminars for client safety
personnel in our home office. This is charged as a flat fee per
person.

We may develop or procure and distribute technical and
educational safety material to clients. This would normally be
overhead and not charged directly. Safety literature provided
may include posters, supervisor training material, etc.

We may also check the motor vehicle record (MVR) of client
drivers at their request. This would be charged as a flat fee
per MVR checked.

Under a separate contract, we will be providing consulting
services for "Extra-Hazardous Employers" as **.
This entails providing safety consultations required
under Chapter 164, Section 7.04 of the Texas Workers'
Compensation Act. The contracts may be with clients insured by
***** or by some other insurance carrier.
In any case, the contract is separate from "insurance services"
provided through the insurance policy. The required process
under the Extra-Hazardous Employer program includes our
consultant surveying each job site to identify hazards, then
getting with the Extra-Hazardous client to develop an accident
prevention plan. The accident prevention plan must be filed by
our consultant with the Texas Workers' Compensation Commission
and the client. Our fees are once again on a time and expense basis.

QUESTION:

Based on the above description of consulting services, should
our company charge sales tax on any or all of the services detailed?