If a firm currently does nontaxable liquidation-related subcontracting work for Special Deputy Receivers of insolvent insurance companies, and plans to expand into marketing, reinsurance, and managerial consulting for insurance companies, will that new consulting work be subject to Texas sales tax?

Plain-English summary

A firm currently subcontracts to Special Deputy Receivers — officials appointed to liquidate insolvent insurance companies in Texas — and believed its professional services in that role weren't subject to sales tax. Looking ahead to 1998, the firm planned to expand into a different line of work: consulting to insurance companies on marketing, reinsurance, and managerial matters, and it asked the Comptroller for a written opinion on whether sales tax would apply to these new services and fees.

The Comptroller pointed to Rule 3.355, which defines several categories of taxable "insurance services" in subsections (a)(1) through (a)(6) — all taxable when performed pertaining to policies of insurance — and specifically flagged that paragraphs (a)(4) and (a)(6) include consultations. The Comptroller also referenced a prior 1996 letter (9602230L) establishing that receivers — including the Texas Commissioner of Insurance acting in a receivership capacity — do incur sales and use tax liability on this kind of work. Based on that precedent, the Comptroller told the firm to expect that it will be responsible for collecting and remitting sales tax on its new marketing, reinsurance, and managerial consulting services, unless those services turn out to be materially different from what the 1996 letter addressed.

What this means for you

Firms consulting for insurance companies or receiverships

Marketing, reinsurance, and managerial consulting for insurance companies can be taxable "insurance services" under Rule 3.355(a)(4) and (a)(6), which specifically reach consultations pertaining to policies of insurance — don't assume consulting work escapes the insurance-services tax category just because it's advisory rather than claims-related.

Firms currently doing receivership/liquidation subcontracting work

If you're expanding from liquidation-support work into insurance-company consulting, evaluate the new work separately — the tax treatment of your existing receivership subcontracting doesn't automatically carry over to a materially different service line.

Accountants and tax professionals

This letter shows the Comptroller applying an existing precedent (the 1996 receivership letter) by analogy to a firm's planned expansion, rather than issuing a fresh independent analysis — useful context for evaluating how consulting services to insurance companies get classified under Rule 3.355.

Common questions

Q: Is consulting for insurance companies on marketing, reinsurance, or management taxable in Texas?
A: Likely yes, if it pertains to policies of insurance — Rule 3.355(a)(4) and (a)(6) specifically include consultations within the taxable insurance-services categories.

Q: Does acting as a receiver or subcontractor to a receiver change this?
A: No — the Comptroller has held that receivers, including the Commissioner of Insurance acting as receiver, incur sales tax liability on this type of work.

Q: Can I rely on this letter for my own consulting arrangement?
A: No. This opinion is based on the facts presented, and additional or different facts may change the result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a)(1)-(6) (insurance services; consultations specifically included in (a)(4) and (a)(6))
• Comptroller Letter Ruling 9602230L (February 26, 1996) (receivers, including the Commissioner of Insurance acting as receiver, incur sales tax liability)

Subject

Commissioner Of Insurance — Acting As Receiver Of Insurance Company In Receivership

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801231L

Original ruling text

January 26, 1998

Dear **:

Thank you for your letter of January 16, 1998, concerning your firm's Texas
sales and use tax responsibilities when operating as a subcontractor to Special
Deputy Receivers.

Special Deputy Receivers are appointed to liquidate insurance companies in the
State of Texas. Your understanding is that there is no applicable sales tax to
those professional services.

During 1998, your firm desires to change the focus of its operation to include
consulting to insurance companies for marketing, reinsurance, and managerial
professional services. You are requesting a written opinion as to the
application of sales tax to these professional services and fees.

Enclosed is Rule 3.355 concerning insurance services. The services defined in
section (a)(1) through (6) are taxable when performed pertaining to policies of
insurance. Please note definitions in paragraphs (a)(4) and (a)(6) which
specifically includes consultations.

I am also enclosing an edited letter regarding this topic (NOTE: letter found
under 9602230L). As you can see, the Comptroller has determined that there are
sales and use tax liabilities incurred by receivers, including the Commissioner
of Insurance when acting in the capacity of a receiver. We would assume that
your firm will be responsible for collecting and remitting sales tax unless the
consultations are materially different from those addressed the February 26,
1996 letter.

I am mailing a sales tax application packet under separate cover.

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