Does a Texas risk management consultant have to charge sales tax on services performed for insurance carriers, insureds, or policyholders?

Subject

Risk Management Insurance Services Performed By Risk Manager

Plain-English summary

This is a short follow-up letter from the Texas Comptroller's office confirming, again, that the services a risk management consultant performs are taxable insurance services. The letter refers back to an earlier letter from Larry Koenig dated April 26, 1990, and to a 1988 letter the Comptroller sent to the State Board of Insurance (the Insurance Commission), which first stated that risk manager services are taxable as insurance inspections under Rule 3.355(a)(2). Risk management consultants also perform insurance loss prevention services, which are separately taxable under Rule 3.355(a)(6).

The letter also flags a bit of housekeeping: a document called Taxability Response (TR) 1209 reaffirmed the 1988 position, and because TR 1209 was approved after the original letter to this taxpayer, TR 1209 now supersedes that earlier letter as the controlling guidance.

Finally, the letter restates the general rule in 34 Tex. Admin. Code § 3.355(b): any of the insurance-related activities listed in Rule 3.355(a)(1) through (a)(6) are taxable whenever they are performed for an insurance carrier, its insured, its policyholder, or others in connection with a policy of insurance.

What this means for you

Risk management consultants

If you perform insurance inspection or loss prevention work for an insurance carrier, an insured party, a policyholder, or anyone else connected to a policy of insurance, the Comptroller treats those services as taxable insurance services under Rule 3.355. This applies regardless of whether you call yourself a "risk manager" rather than an "insurance adjuster" or "inspector" -- the Comptroller looks at the nature of the service performed, not the job title.

Businesses that hire risk managers or insurance consultants

If you're purchasing risk management or loss-prevention services connected to an insurance policy, expect Texas sales tax to apply to the charge, the same as it would for other taxable insurance services listed in Rule 3.355(a).

Anyone relying on an older Comptroller letter about this topic

The letter is a reminder that older guidance can be superseded by later documents (here, TR 1209 superseded a 1988 letter). Always check whether more recent Comptroller guidance has replaced the letter you're relying on.

Common questions

Q: What makes risk management services taxable in Texas?
A: The Comptroller classifies the inspection component of risk management work as a taxable "insurance inspection service" under Rule 3.355(a)(2), and the loss-prevention component as a taxable "insurance loss prevention service" under Rule 3.355(a)(6).

Q: Does it matter who the risk manager is working for?
A: Yes, in the sense that the tax applies broadly: under Rule 3.355(b), the service is taxable when performed for an insurance carrier, its insured, its policyholder, or others pertaining to a policy of insurance -- not just when billed directly to an insurance company.

Q: What is TR 1209 and why does it matter here?
A: TR 1209 is a Taxability Response in which the Comptroller reaffirmed its March 14, 1988 position that risk manager services are taxable. Because TR 1209 was approved after the original 1990 letter to this taxpayer, TR 1209 supersedes that letter as the current guidance.

Q: Can I rely on this letter for my own business?
A: Only if you are the taxpayer this letter was issued to. Under Texas Comptroller rules, STAR letters can support a detrimental-reliance claim only for the specific taxpayer who received them, and older letters can be superseded by newer guidance, as happened here.

Citations and references

• 34 Tex. Admin. Code § 3.355(a)(2) (insurance inspection services)
• 34 Tex. Admin. Code § 3.355(a)(6) (insurance loss prevention services)
• 34 Tex. Admin. Code § 3.355(b) (taxable when performed for a carrier, insured, policyholder, or others pertaining to a policy of insurance)
• Taxability Response (TR) 1209 (reaffirming the March 14, 1988 Comptroller letter to the State Board of Insurance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1187F05

Original ruling text

September 4, 1992

Dear **:

This is a follow-up to Larry Koenig's letter of April 26, 1990, concerning the
Texas sales and use tax responsibilities of a risk management consultant.

Enclosed are edited documents addressing the sales and use tax responsibilities
of risk managers. In a letter to the State Board of Insurance (the Insurance
Commission) dated March 14, 1988, the Comptroller informed the commission that
the services of a risk manager are taxable as insurance inspections under Rule
3.355 (a) (2) concerning insurance services. Risk management consultants also
perform insurance loss prevention services as defined in Rule 3.355(a) (6).

In Taxability Response (TR) 1209, the Comptroller reaffirmed the March 14,
1988 letter ruling. Please note paragraphs 1 through 4 on page 3 of this
document. Also, note that this document was approved after the date of the
letter to you. TR 1209 supersedes the letter to you.

As noted in Rule 3.355(b), any of the activities that are defined in Rule
3.355(a) (1) through (a) (6) are taxable when performed for an insurance
carrier, its insured, its policyholder, or others pertaining to a policy of
insurance.

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, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Eddie C. Washington
Tax Administration Division