When an insurance carrier reimburses a service provider for travel, meals, and hotel expenses incurred while performing a taxable service, is that reimbursement itself part of the taxable sales price, even though it's separately stated and feels like a pass-through cost rather than a fee for the service?

Plain-English summary

An insurance carrier asked whether it was effectively being taxed twice on the same item: it pays sales tax on a taxable insurance service, and separately reimburses the service provider for travel, meals, and hotel expenses the provider incurred while performing that service — is the reimbursement itself also part of the taxable price?

The Comptroller's answer: yes, the expense reimbursements are taxable as part of the total price of the taxable service, even when the seller separately states them on the invoice. Texas Tax Code Sec. 151.007(a) defines "sales price"/"receipts" as the total amount charged for a taxable item, without any deduction for the taxable item itself, materials, labor or other services employed, interest, losses or other expenses, transportation of tangible personal property, or transportation incident to performing a taxable service. Travel, meals, and hotel costs fall squarely within that no-deduction rule.

There's a narrower related point about sales tax already paid on those expenses (e.g., sales tax the provider itself paid on a hotel room or meal tax on a restaurant bill). If the provider wants to be reimbursed specifically for tax it already paid on those purchases and separately bills for that reimbursement, the invoice should describe it as a "reimbursement" of tax, not as newly collected sales tax — because the resale exemption only applies to property that passes into the customer's care, custody, and control as part of the service, and most retailers/providers just fold these costs into their total price rather than itemizing a tax reimbursement. Either way, separately stating the expense doesn't change the tax base the customer ultimately pays.

Note on this letter's ALERT: STAR flags this 1999 letter with an ALERT pointing readers to the current Rule 3.285 (Resale Certificates; Sales for Resale, amended 2017) for more specific guidance on the care-custody-control question this letter touches on — a genuine pointer to updated guidance, not routine ag-registration boilerplate.

What this means for you

Service providers who bill clients for travel/meal/hotel expenses tied to a taxable service

Those reimbursed expenses are part of your taxable sales price, whether you fold them into your fee or itemize them separately — itemizing doesn't remove them from the tax base.

Businesses paying for taxable services (like insurance carriers here)

Don't expect a carve-out for expense reimbursements just because they feel like pass-through costs rather than a fee for the service itself — the "no deduction" rule in Sec. 151.007(a) reaches them.

Accountants and tax professionals

Distinguish two different things this letter touches: (1) the tax base for the underlying taxable service (which always includes reimbursed expenses, per Sec. 151.007(a)), and (2) how a provider should label a separate reimbursement of tax it already paid on its own expense purchases (as a "reimbursement," to avoid it looking like newly collected sales tax) — plus the current cross-reference to Rule 3.285 on the resale/custody question.

Common questions

Q: Are travel, meal, and hotel expenses reimbursed to a service provider taxable as part of a taxable service's price?
A: Yes, under Sec. 151.007(a)'s "no deduction" rule for sales price, even if separately stated on the invoice.

Q: Does separately itemizing these expenses reduce the customer's sales tax?
A: No — separately stating expenses doesn't change the tax base.

Q: If a service provider already paid sales/hotel tax on its own expenses, can it bill the customer to be reimbursed for that tax?
A: Yes, but the invoice should describe it as a "reimbursement" of tax rather than as newly collected sales tax.

Q: Can I rely on this letter for my own service billing today?
A: This letter reflects 1999 law; STAR's own ALERT points to the current Rule 3.285 (amended 2017) for more specific guidance on the underlying care-custody-control question, so confirm current requirements before relying on it.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.007(a) (definition of "sales price"/"receipts" -- no deduction for expenses)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9908615L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

August 6, 1999

To: **

Subject: Sales Tax Question

Dear **:

Thank you for your e-mail concerning the taxability of expenses related to
taxable services such as insurance services.

Question: Is an insurance carrier subject to paying Texas state sales tax on
expense reimbursements (i.e., taxed twice for the same item) for expenses
indirectly related to services that are taxable?

Response: The expense reimbursements (e.g., for travel, meals, hotel, etc.)
are taxable to the insurance carrier as part of the total price of the taxable
service, even if separately stated by the seller of the taxable insurance
service. The sales tax law does not allow such expenses to be excluded from
the sales price. Texas Tax Code Section 151.007(a) states that "sales price"
or "receipts" means the total amount for which a taxable item is sold, leased,
or rented, valued in money, without a deduction for the cost of:

(1) the taxable item sold, leased, or rented;

(2) the materials used, labor or service employed, interest, losses, or other
expenses;

(3) the transportation of tangible personal property;

(4) transportation incident to the performance of a taxable service.

In regards to the reimbursement of sales tax paid on a meal or hotel tax paid
on a hotel, the service provider should clearly show these expenses as
reimbursements. The service provider must pay applicable tax on these
transactions (the resale exemption in the law only applies to property
transferred to the care, custody and control of the customer as part of the
service) and if the service provider insists on being reimbursed for the tax on
such purchases and charging a separate charge for such reimbursement, the
billing or invoice should show this as a "reimbursement" of tax rather than the
collection of sales tax. Most retailers and service providers simply include
these expenses in their total price. Separately stating these expenses does
not change the tax base when determining the sales tax the customer pays for
the taxable service.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

I hope this information helps. If you have further questions, please e-mail me
at [email protected], or you may reach me by phone at 1-800-531-5441,
ext. 5-0030.

Sincerely,

David Somerville
Tax Policy Division