My company contracts with insurance companies to review their claims data and identify overlooked reinsurance recoveries they're entitled to but haven't collected — we don't touch the original claims or the relationship between the insurer and the insured. Is this service subject to Texas sales tax?

Plain-English summary

A company contracted with insurance companies to hunt for overlooked reinsurance recoverables — money the insurer was entitled to collect under its reinsurance contracts but hadn't yet claimed. Its process: the insurance company provides an electronic copy of its claim, underwriting, and premium data; the company reformats that data for its own software (adding new fields without altering the client's original data); runs the data through software to flag files with potential reinsurance recovery; manually reviews the flagged files to make a final determination; and hands the results back to the insurance company, which then pursues collection on whatever recoveries it agrees are valid. The company emphasized it never touches the original claim, isn't involved in claims adjustment, and has no role in the relationship between the insured and the insurance company — and asked whether this service is subject to Texas sales tax.

The Comptroller's answer: yes, it's taxable. Rule 3.355(a)(3) defines an "insurance investigation" broadly as any activity performed to evaluate an individual's (or, here, an insurance company's) eligibility or qualifications for insurance coverage or for the payment of benefits, or any similar activity. Reviewing claims data to determine whether the insurance-company client is eligible for reinsurance benefits under its reinsurance contracts/policies fits that definition. And under Rule 3.355(b), insurance services performed on behalf of an insurance carrier for monetary fees are taxable — regardless of how narrow or hands-off the specific activity is compared to traditional claims handling.

What this means for you

Reinsurance recovery auditors and claims-data analytics firms serving insurers

Even a narrowly scoped, hands-off data-review service — no claims adjustment, no contact with policyholders — can still be a taxable "insurance investigation" if its purpose is determining an insurance company's eligibility for benefits under its own policies (here, reinsurance recoveries). Don't assume distance from the original claim protects you from taxability.

Insurance companies hiring third-party reinsurance recovery specialists

Expect your vendor's fee for this kind of recovery-identification service to carry Texas sales tax, since it's classified as a taxable insurance investigation service performed on your behalf for a fee.

Accountants and tax professionals advising insurance-adjacent service providers

Rule 3.355(a)(3)'s "eligibility or qualifications for coverage or payment of benefits" language is broad enough to capture back-office, data-driven eligibility analysis — not just traditional field investigation or claims handling — so evaluate insurance-industry service offerings against that definition even when the work looks purely analytical.

Common questions

Q: Is a service that identifies overlooked reinsurance recoveries for an insurance company taxable in Texas?
A: Yes — it's an insurance investigation under Rule 3.355(a)(3), and insurance services performed for an insurance carrier for a fee are taxable under Rule 3.355(b).

Q: Does it matter that the service doesn't touch the original claim or the insurer-insured relationship?
A: No — the taxable "insurance investigation" definition covers any activity evaluating eligibility for coverage or benefits, regardless of how removed it is from direct claims handling.

Q: Can I rely on this letter for my own reinsurance recovery or claims-analytics business?
A: No. This opinion is based on the facts presented, and if there are additional or different facts, the opinion may change; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.355(a)(3) (insurance investigation — eligibility/qualification evaluation for coverage or benefits)
• 34 Tex. Admin. Code Rule 3.355(b) (insurance services performed for an insurance carrier for a fee are taxable)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9812206L

Original ruling text

December 14, 1998

Dear Mr. **:

Thank you for your recent letter concerning your company's Texas sales and use
tax responsibilities.

Your company contracts with insurance companies to identify overlooked
reinsurance recoverables. To assist in your determination, you summarized the
process of identifying these additional recoverables:

Step one involves the insurance company providing you with an electronic copy
of their claim, underwriting and premium information covering the period you
are to examine.

Step two involves your converting the data into the proper format to run in
your software. This requires your making changes to some of the information
supplied by the company. This occurs in additional fields you add to the
database the company provides so as not to corrupt the data supplied by the
company.

Step three begins when you start running the data through your software. The
result of this step is a list of files that you review to determine whether
there is any reinsurance recovery attached to the claim.

Step four is your actual review of the files you have asked the company to
provide. You will then make a final determination as to whether there is
reinsurance recovery available on that particular claim file.

Step five requires the company to review your results and begin the process of
collecting the additional recoveries they agree are due on the claim files you
have identified.

Your question is whether this service is subject to sales tax under Texas law.
You in no way affect the original claim, are not involved in the adjustment of
claims nor do you have anything to do with the relationship between the insured
and the company.

Response: Rule 3.355(a)(3) defines an insurance investigation as: any activity
performed to evaluate an individual's eligibility or qualifications for
insurance coverage, or for the payment of benefits, or any other similar
activity. The activities described are an insurance investigation made to
determine if your clients (insurance companies) are eligible for benefits
pursuant to reinsurance contracts or policies.

Rule 3.355(b) states: Insurance services defined in subsection (a) of this
section performed on behalf of an insurance carrier, its insured, its
policyholders, or others pertaining to a policy or policies of insurance for
monetary fees, dues, or other consideration are taxable.

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 if you have any
questions or need more information. 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