Are insurance services performed for a self-insured or self-funded plan taxable in Texas?

Subject

Self — Insured Or Self — Funded Plans

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402L1287G12

Plain-English Summary

The Texas Comptroller addressed whether insurance services performed under a self-insured plan, or for a third-party administrator (TPA) handling funds under such a plan, are subject to Texas sales tax. Under Rule 3.355(b), these insurance services are not taxable — and that non-taxable treatment extends even to insurance services performed pursuant to stop-loss insurance provided for self-insured plans.

Because the services are not taxable, a provider of insurance services should not collect sales tax from a self-insured entity or its TPA. Instead, Rule 3.355(b) and (g) require the provider to obtain an exemption certificate from the self-insured client or its TPA. A TPA is permitted to issue that exemption certificate when it buys insurance services on behalf of a self-insured client.

The ruling also addresses geographic scope: insurance services performed in Texas for claims against a self-insured client that occurred in other states are not taxable. By contrast, insurance services related to an actual policy of insurance (other than stop-loss insurance for a self-insured plan) are only taxable when the criteria in Rule 3.355(d) are met. The Comptroller noted that questions about the taxability of insurance services performed for clients located in other states should be directed to the taxing authorities of those states.

What This Means For You

If you provide insurance services to a self-insured plan or its TPA: Do not collect Texas sales tax on those services, including services tied to stop-loss insurance for the self-insured plan. Instead, obtain a properly issued exemption certificate from the self-insured client or its TPA under Rule 3.355(b) and (g).

If you are a TPA administering a self-insured plan: You may issue an exemption certificate to vendors when purchasing insurance services on behalf of your self-insured client, so that sales tax is not charged on those services.

If your insurance services relate to an actual insurance policy (not a self-insured plan) or to stop-loss insurance: Taxability depends on whether the criteria in Rule 3.355(d) are satisfied, rather than on the self-insured exemption discussed in this ruling.

Q&A

Q: Are insurance services performed for a self-insured plan subject to Texas sales tax?
A: No. Rule 3.355(b) provides that insurance services performed pursuant to a self-insured plan, or for a TPA handling funds under a self-insured plan, are not taxable.

Q: Does the non-taxable treatment cover stop-loss insurance for a self-insured plan?
A: Yes. The ruling states this applies "even to insurance services performed pursuant to stop loss insurance provided for self insured plans."

Q: What must an insurance service provider do instead of collecting sales tax from a self-insured client?
A: The provider must obtain an exemption certificate from the self-insured entity or its TPA. Rule 3.355(b) and (g) allows a TPA to issue that exemption certificate when purchasing insurance services for a self-insured client.

Original ruling text

February 7, 1994

Dear **:

Thank you for your letter of January 21, 1994, concerning the taxability
of insurance services performed pursuant to a self-insured plan or for a
third-party administrator (TPA) handling distribution of funds under a
self-insured plan.

Rule 3.355(b) concerning insurance services states that insurance services
performed pursuant to a self-insured plan or for a TPA handling funds under
a self-insured plan are not taxable. This applies even to insurance services
performed pursuant to stop loss insurance provided for self insured
plans.

Persons providing insurance services are required to get an exemption
certificate from the self-insured or the self insured's TPA instead of
collecting sales tax. Rule 3.355(b) and (g) allows a TPA to issue an
exemption certificate when buying insurance services for a self-insured
client.

Insurance services performed in Texas for claims against a self-insured
client occurring in other states are not taxable. Insurance services
performed pertaining to a policy of insurance (excluding stop-loss insurance
for a self insured plan) are taxable only when the criteria set out in Rule
3.355(d) applies.

Questions concerning the taxability of insurance services performed for
clients located in other states should be address to the taxing authorities
of those states.

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

You may call toll free 1-800-531-5441, extension 3-4683 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

NOTE: Previous Accession Number 9402073L