Is an insurance agent fee charged under Texas Insurance Code Article 21.35B subject to Texas sales tax?

Plain-English summary

An insurance agency asked whether an "agent fee" it charges under Texas Insurance Code Article 21.35B — collected in connection with an application for insurance or issuance of a policy, and not in lieu of the commission otherwise payable to the agency — is subject to Texas sales and use tax. The fee covers the agency's administrative costs in processing the application and delivering the policy, and is distinct from a "service fee" under Article 21.35A or an "inspection fee," and is not a fee for insurance loss/damage appraisal, property inspection, insurance investigation, claims adjustment/processing, or loss prevention services.

The Comptroller confirmed the agency's understanding was correct: the fee is not taxable. Article 21.35A separately allows an agent to collect a fee for costs like special delivery, printing/reproduction, electronic mail, or telephone transmission incurred on behalf of the client — these fees also aren't subject to sales tax, though the agent must still pay tax itself on any taxable goods or services it buys "on behalf of the client" (the tax becomes just another cost recovered through the fee). A "picture fee" — charging for a photo of insured property submitted with the application — is likewise not taxable to the client, though the agent must pay tax to the photographer for the underlying taxable sale of the picture.

The bottom line rule: agent fees under Article 21.35B are not taxable if they're in the nature of a sales commission and the agent does not perform a taxable insurance service as defined in Rule 3.355 — even though Article 21.35B literally lists "inspection fees" among what an agent may collect, an inspection fee is only taxable if the agent actually performed the inspection (a taxable insurance service under Rule 3.355(a)(2)); merely collecting a pass-through fee without performing the taxable service keeps it untaxed.

What this means for you

Insurance agents and agencies

Whether your agent fee is taxable turns on what you're actually doing, not what the fee is called. A fee that's really a sales commission, or a pass-through for costs like delivery/printing/phone/photos, is not taxable — but if you perform an actual taxable insurance service (inspection, claims processing, loss appraisal), that portion of your charge is taxable under Rule 3.355. Structure and document your fee schedule to make clear which services, if any, you perform yourself.

Accountants and tax professionals

Rule 3.355(i) addresses mixed taxable/nontaxable single charges — review it directly if a client bundles a commission-type fee with any actual taxable insurance service, since bundling can pull the whole charge into tax if not properly separated.

Common questions

Q: Is an Article 21.35B agent fee automatically nontaxable?
A: Not automatically — it's nontaxable when it's in the nature of a commission and the agent doesn't perform a taxable insurance service like an inspection or claims processing.

Q: What if the fee description includes "inspection fees"?
A: The label doesn't control — an inspection fee is taxable only if the agent actually performed the inspection service; merely collecting the fee without performing it does not make it taxable.

Q: Does the agent owe tax on anything here?
A: Yes — on its own purchases of taxable goods/services (delivery, printing, phone, photos) bought on behalf of the client, and on the picture itself purchased from a photographer, even though those costs are then passed through in a nontaxable fee to the client.

Q: Can another insurance agency rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Statutes and rules:

• Tex. Ins. Code art. 21.35A (recording agent service fee for delivery/printing/electronic/phone costs)
• Tex. Ins. Code art. 21.35B (agent fee on insurance applications/policy issuance)
• 34 Tex. Admin. Code § 3.355(a)(2) (insurance inspection as a taxable insurance service)
• 34 Tex. Admin. Code § 3.355(i) (taxable and nontaxable unrelated services for a single charge)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710935L

Original ruling text

October 6, 1997

Dear ****:

Thank you for your letter of October 1, 1997, asking about your Texas sales and
use tax responsibilities regarding agent fees.

The fee you charge is authorized under Texas Insurance Code (T.I.C ) Article
21.35B. The fee is charged in connection with an application for insurance or
the issuance of the policy. The fee is not in lieu of a commission which is
otherwise payable to ABC Insurance Agency. The agent fee is an additional fee
to cover certain administrative costs incurred by the agency in processing the
application and delivering the policy.

The agent fee is not intended to nor is it in lieu of a-service fee which is
authorized under T.I.C Article 21.35A. or an inspection fee which is an
additional fee authorized under T.I.C. Article 21.35B. The agent fee is not 1)
a fee collected for specific insurance services such as insurance loss or
damage appraisal, 2) an inspection fee for the purpose of evaluating a risk to
property, or to survey or value property, 3) an insurance investigation fee to
evaluate the eligibility or qualifications for insurance coverage, or for the
payment of benefits, or for any other similar act, 4) a fee for insurance
claims adjustment or claims processing, or 5) a fee for insurance loss
prevention services.

It is your understanding that if the agent fee which you collect under T.I.C.
Article 21.35B is not one collected for the provision of insurance services,
then such fee is not subject to the Texas state sales and use tax.

Response: Your understanding is correct. Texas Insurance Code Article 21.35A
allows an agent to collect a fee for services that may include special delivery
charges, printing and reproduction costs, electronic mail costs, telephone
transmission costs, or similar costs that the local recording agent may incur
on behalf of the client. These fees are not subject to sales and use tax.

You should be aware that certain costs incurred "on behalf of the client" may
be purchases of tangible personal property or services that are subject to tax.
The local recording agent should pay the tax to the seller or service provider.
The tax paid is then just another cost recovered via the fee(s).

A "picture fee," a charge for a picture of the insured property which is
submitted along with the insurance application to the insurer, is not taxable.
The sale of a picture is a taxable sale or purchase of tangible personal
property. The agent is required to pay tax to the photographer.

Texas Insurance Code Article 21.35B allows an agent to solicit or collect
payments in connection with an application for insurance or the issuance of a
policy for premiums, taxes, finance charges, policy fees, agent fees, service
fees (including charges for costs described under Article 21.35A of this code),
inspection fees, or membership dues in a sponsoring organization.

The agent fees are not taxable if the fees are in the nature of sales
commissions and the agent does not perform taxable insurance services as
defined in Rule 3.355 concerning insurance services. Article 21.35B(a)(5)
includes inspection fees. An insurance inspection is a taxable insurance
service [Rule 3.355(a)(2)]. However, if you are merely collecting the fees and
you did not perform the inspection or any other taxable insurance service
(claims processing), the fee is not taxable.

Rule 3.355(i) discusses tax responsibilities for persons performing taxable and
nontaxable unrelated services for a single charge.

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

You may call me toll free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division