Is a third-party administrator that buys auto glass and bills insurers a marked-up price correctly collecting Colorado sales tax on the marked-up amount?

Plain-English summary

A company is a third-party administrator (TPA) of auto glass claims for U.S. insurance companies. It owns no glass shops and runs call centers outside Colorado; when a policyholder needs glass work, it refers the job to an independent Colorado repair shop, which sources the glass and labor. The TPA buys from the shop and re-bills the insurer at a marked-up price — e.g., the shop charges the TPA $300 for a windshield, the TPA invoices the insurer $310 and calculates sales tax on the $310. It buys from shops using a resale exemption certificate. It asked whether collecting and remitting sales tax on the marked-up price is correct.

The Department's answer: yes, correct.

Reseller, not broker. The key question was whether the TPA buys and resells the goods or is just a broker/agent facilitating a sale between shop and insurer. It matters because:

• a reseller buys exempt from the shop and collects sales tax from the insurer on resale; but
• a mere disclosed agent/broker is neither buyer nor seller and has no duty to pay or collect (tax is imposed on the purchaser and collected by the seller — Reg 39-26-104.1(a); J.A. Tobin Construction Co. v. Weed, 407 P.2d 350 (Colo. 1965)).

The Department read the standard contracts and concluded the TPA is contractually the reseller: it's the party that contracts with and is responsible for paying the suppliers, and it sets the price (network shops priced off a NAGS discount schedule; non-network at "reasonable and customary" local rates). There's no provision making it a mere purchasing agent for insurers, and no direct contract between insurer and shop. The Department also invoked Reg 39-26-105.2: when a company undertakes to warrant/repair damaged goods owned by a third party, it is the consumer of the replacement part — but here the TPA resells to the insurer, and the insurer (not the insured) is the ultimate consumer. So the TPA resells the glass to the insurer: its purchases from shops are exempt wholesale purchases, and it must collect sales tax from the insurer on the marked-up price (§§ 39-26-102(7), (9), 104(1)(a)).

Local tax sourcing. Tax is due where the sale occurs — where title and possession pass, which under the UCC (absent contrary terms) is where the goods are delivered, i.e., where the glass is installed in the vehicle. State-administered city and county jurisdictions impose only sales tax (so no liability if no sale there); state-administered special districts (e.g., RTD) impose both sales and use tax. The TPA owns no property and has no employees in Colorado, but it holds a Colorado sales tax license and contractually agreed to collect and remit, so it's responsible for state and state-collected local sales taxes, determined by the vehicle's location at installation.

What this means for you

Insurance claims administrators and intermediaries

Whether you're a reseller or a broker is decided by your contracts, not your job title. If you're contractually obligated to pay the suppliers and you set the price, you're a reseller: buy exempt for resale and collect tax from your customer (the insurer) on the marked-up price. If you were a true disclosed agent, you'd be neither buyer nor seller and outside the collection duty — but contract terms control.

Auto glass shops and resellers

A TPA that hands you a valid resale certificate and is the party responsible for paying you is buying for resale — don't charge it tax on those sales. The tax is collected downstream from the insurer, sourced to where you install the glass.

Accountants and tax professionals

Two doctrines: (1) reseller vs. agent/broker — look to who is contractually liable to pay the supplier and who sets the price (and note the warrantor-as-consumer rule of Reg 39-26-105.2, which did not apply because the TPA resold rather than self-consumed); and (2) local sourcing by title/possession passing at installation, with city/county = sales tax only vs. special districts = sales + use. Even a company with no Colorado property or payroll collects once it licenses and contractually agrees to collect. Watch the home-rule-city caveat below.

Common questions

Q: Does the auto glass administrator charge tax on the price it paid or the marked-up price?
A: The marked-up price it charges the insurer. It buys the glass exempt for resale and collects sales tax from the insurer on the full resale (marked-up) amount.

Q: Why isn't it just a broker with no tax duty?
A: Its contracts make it responsible for paying the shops and for setting the price, with no direct shop-insurer contract — so the Department found it's contractually a reseller, not a mere agent.

Q: Which local tax applies?
A: The one for the place where title and possession pass — where the glass is installed in the vehicle. City/county jurisdictions impose sales tax there; special districts impose sales and use tax.

Q: It has no Colorado offices or employees — why does it collect?
A: Because it holds a Colorado sales tax license and contractually agreed to collect and remit. As the reseller it's responsible for state and state-collected local sales taxes.

Q: Can my business rely on this ruling?
A: No. A private letter ruling binds the Department only as to the taxpayer and facts it was issued to and cannot be relied upon by anyone else. It's also void if the taxpayer's representations were inaccurate.

Citations and references

Statutes and rules:
- § 39-26-102(9), C.R.S. (retail sale vs. exempt wholesale/resale purchase)
- §§ 39-26-102(7), 104(1)(a), C.R.S. (tax on the consideration paid by the purchaser)
- Department Regulation 39-26-104.1(a); J.A. Tobin Construction Co. v. Weed, 407 P.2d 350 (Colo. 1965) (tax imposed on purchaser, collected by seller)
- Department Regulation 39-26-105.2 (warrantor of third-party goods is the consumer of replacement parts)

Related rulings: [[plr-13-004-private-letter-ruling]] (resale of materials by a contractor), [[gil-14-002-modular-homes]] (resale/wholesale exemption with a license), [[plr-24-008-sourcing-sales-when-customer-arranges-for-third-party-shipping]] (sourcing where title/possession passes).

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-13-007.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

PLR-13-007

October 2, 2013

xxxxxxxxxxxxxxx
ATTN:XXXXXXXXXX
xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx
Re: Private Letter Ruling

Dear XXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXX ("Company") a request for a private letter
ruling to the Colorado Department of Revenue ("Department") pursuant to Regulation 24-35103.5. This letter is the Department's private letter ruling.
Issues
Is Company's method of collecting and remitting sales tax on the marked-up price
Company charges to insurance companies correct?
Conclusion
Company's method of collecting and remitting sales tax on the marked-up price
Company charges to insurance companies is correct.
Background
Company operates as a Third Party Administrator of auto glass claims for U.S.
insurance companies. Company does not own glass installation locations, but operates
two call centers outside of Colorado where appointments for policyholders are
arranged with independent retail auto glass repair facilities in the state where the
policyholder is located. Company makes referrals to these independent vendors which
then source the glass and labor to repair the policyholders' vehicles.
Company operates on a "Sale for Resale' basis in Colorado because most invoices
and its components include a 'mark-up' from the original auto glass vendor's invoice
when invoiced to the insurance client. Thus, Company remits sales tax on the full
amount charged to the insurance client rather than the amount the glass vendor initially
charged. Accordingly, Company provides auto glass vendors performing work on

behalf of Company's clients with a certificate of exemption with their Colorado sales tax
account number.
The following example was provided by Company. A retailer in Colorado charges
Company $300 for a windshield part and the related tax amount based on that $300.
Company invoices the insurance company for that same part marked up to $310.
Company then calculates the sales tax obligation on the total $310 bill to the final
payer, the insurance company. The question at issue is whether this method of
collecting and remitting sales tax on the marked-up price is correct.
Discussion
The principal issue raised in this request for ruling is whether Company is selling goods
or simply acting as a broker between the sellers (suppliers) and buyers (insurance
companies) of such goods. The distinction is suggested because Company describes
itself as a Third Party Administrator of insurance claim obligations of the insurance
companies. That is, a Third Party Administrator simply may be providing the service of
a broker who facilitates a sale between the supplier and insurance company and does
not, itself, purchase the goods. The distinction is important because if Company does
purchase the goods, then it purchases the goods exempt1 from tax from suppliers and
collects sales tax from insurance companies when it resells the goods to them. On the
other hand, if Company is merely the disclosed agent or broker for the insurance
companies, then Company is neither the buyer nor seller and, therefore, does not have
the obligation to pay or collect sales tax.2
In most cases, a buyer is both the person who pays for the goods and the consumer of
the goods. However, the buyer need not be the consumer. For example, a buyer of a
gift for another is liable for sales tax even though the gift is consumed by the recipient
of the gift. In the case before us, the insurance company and the car owner are the
consumers of the goods, not Company. Thus, we generally look to see who has the
contractual obligation to the seller to pay the purchase price.
We have examined standard contracts between Company and suppliers and Company
and insurance companies. Although there are contract provisions that suggest to the
contrary, we believe that these contracts indicate that Company is not merely a broker
of services, but is contractually the reseller of the goods. A number of provisions lead
us to that conclusion. First, the contracts indicate that Company is the party who
contracts with suppliers and who is contractually responsible for payment to them.
Company's contract with its network of suppliers states in relevant part,
7. Independent Subcontractor. It is understood and agreed that Affiliate shall
not, under any circumstances, be deemed to be an agent, employee or partner
1
2

Sales tax applies only to retail sales, which are all sales except wholesale sales. §39-26-102(9),
C.R.S. A purchase for resale is an exempt wholesale purchase.
Sales tax is imposed on the purchaser and collected by the seller. Department Regulation 39-26104.1(a) and J.A. Tobin Construction Co. v. Hugh H.C. Weed, Jr., 158 Co/o.430, 407 P.2d 350 (1965)
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of, in joint venture with, HSG. HSG shall be responsible for the payment of
taxes on retail sales reported by affiliates who are understood to be operating as
subcontractor to HSG. HSG is deemed to be operating on a "sale for resale"
basis in most states and will calculate, collect and remit all applicable sales tax
to the proper authorities. [emphasis added] In such states where HSG is
deemed to operate on a "sale for resale" basis, Affiliate shall not be liable for
payment of sales and use taxes. Should Affiliate pay sales and use tax HSG
reserves the right to reduce reimbursement to Affiliate for the amount of sales
and, or use tax due to the proper authorities. HSG shall not be responsible for
reimbursing Affiliate in such cases where Affiliate improperly collected sales
taxes.
Company's contracts with the insurance companies is less clear. In some provisions, it
appears that Company is simply forwarding the supplier's invoice for payment by the
insurance company and Company is, for a fee, passing the payment on to the
suppliers.
10. EDI/Electronic Billing. HSG will provide EDI invoicing (or other methods of
electronic invoicing) for all Auto Glass Claims utilizing established ANSI
standards. HSG will require all glass shops (network shops and non-network
shops) to bill them electronically. Any paper invoices will be converted to
electronic format by HSG for the benefilof the Company. HSG will provide
technical assistance as it relates to electronic invoicing and payment of Auto
Glass Claims. HSG agrees to maintain, at its expense, all Company invoice and
claim details within its system for a period not less than five (5) years from the
date of payment. The data stored shall be available to the Company on 72-hour
notice and shall be provided electronically or as otherwise reasonably requested
at no cost to the Company.
For all Auto Glass Claims, if a policyholder does not express a preference for a
specific glass shop, HSG will arrange for an network or nonnetwork glass shop
to provide the necessary services; ... and HSG will audit the glass invoices for
accuracy and electronically submit the invoices and loss reports to the Company
for all fulfilled Auto Glass Claims. The Company will remit payment to HSG and
within an average of five (5) business days from receipt of the invoice, but in any
event invoices shall be paid within 30 days. ..... HSG will be responsible for
submitting payment to the glass shop for services as well as managing all 1099
reporting requirements with respect to all Auto Glass 2 Claims managed by HSG
for the Company. Additionally, HSG will provide a limited warranty on all glass
repairs and replacements that are fulfilled by one of its network shops.
Other provisions also suggest Company is providing a service rather than that of a sale
for resale relationship.
The Company appoints HSG and HSG accepts the appointment as the
Company's exclusive contractor to manage and process Auto Glass Claims
through HSG network shops and non-network shops on behalf of the Company
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during the term of this Agreement (the ''Term"). HSG network shops shall meet
the Company's service, warranty, and pricing criteria in order to be qualified to
receive orders for job placement
HSG will provide the following management and processing services with
respect to FNOL Calls and Auto Glass Claims for the Company:
However, the specific contractual provision relating to billing indicates that Company is
not simply passing the supplier's invoice on to the insurance companies for payment,
but rather Company is setting the price for the goods. In the case of network suppliers,
the price for the goods will be those set forth in its price schedule. For non-network
suppliers, Company's price will be reasonable and customary for the local marketplace.
Billing/Pricing. For work that is performed by a member of the HSG network,
HSG will bill the Company for glass repair and replacement services based on
discounts from the National Auto Glass Specifications (NAGS) standard price
list. These prices are specified in Exhibit A. For work that is performed by a
party that is not a member of the HSG network, HSG will bill the Company at
pricing that is reasonable and customary for the local marketplace in which the
work is performed.
There is no contractual provision that states Company is purchasing the goods merely
as an agent for the insurance companies. Indeed, there appears to be no direct
contractual relationship between the insurance company and suppliers. We note in
this regard that the insurance company, not the insured, is the ultimate consumer of
the goods. When a company undertakes the obligation to warrant and repair defective
or damaged goods owned by a third party, the company is the consumer of the
replacement part and it is not reselling the same to the consumer.3 Therefore, we
conclude that Company is reselling the goods to the insurance companies.4
Tax is collected on the consideration paid by the purchaser to the seller.5 Company
typically purchases goods from suppliers and marks up the goods for resale to the
insurance companies. Company's purchases from suppliers are exempt wholesale
purchases. Company must collect the applicable sales tax from insurance companies.
Colorado has a number of local tax jurisdictions whose taxes are administered by the
Department. There are generally two important issues that must be resolved to
determine what, if any, local taxes are due. First, was there a sale or consumption in
the local tax jurisdiction? Whether a sale occurs in the local tax jurisdiction is important
because state-administered city and county tax jurisdictions impose only sales tax and
3

4
5

Department Regulation 39-26-105.2. You can view this regulation on the Department's web site at
www.colorado.gov/revenue/tax > Tax Library> Regulations> Final Regulations> Sales Regulations.
See, e.g., H.L.E. Meyer v. State Board of Equalization, 267 P.2d 257 (CA 1959); Graybar Electric v.
Curry, 189 So.186 (Al. 1939);
§§39-26-102(7) and 104(1)(a), C.R.S.

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do not impose use taxes.6 Thus, if there is no sale in that jurisdiction, there is no local
sales tax liability. However, state-administered special districts, such as the Regional
Transportation District, levy both a sales and use tax. Therefore, there is a local tax
liability for these local tax jurisdictions if there was either a sale or use in these
jurisdictions.
The second important question is whether the seller (or reseller) has nexus with the
local tax jurisdiction? That is, even if a local sales tax or use tax is due, does the seller
have sufficient connection (nexus) with the local tax jurisdiction to be compelled to
collect such taxes?
With respect to the first question, a sale is deemed to occur in Colorado if and where
either title or possession passes to the buyer or consumer. In the case before us, title
to the goods passes from Company to the insurance company and, ultimately, to the
vehicle owner when the goods are delivered to the buyer or consumer.7 Thus, the title
will typically pass where and when the goods are installed into the vehicle. Similarly,
possession also passes from seller to buyer or consumer when and where the goods
are installed into the vehicle.
Company does not own any property in Colorado and does not have employees in
Colorado. The insurance companies presumably have nexus with Colorado because
they are required to be licensed and are regulated by Colorado.8 As purchasers of the
goods, the insurance companies are liable for sales tax for goods installed in vehicles
located in Colorado.
Company has contractually agreed with insurance company to collect and remit any
applicable taxes. Company has also registered and obtained a Colorado sales tax
license from the Department. Therefore, Company is responsible for collecting state
and state-collected local sales taxes. The applicable local sales taxes are determined
by the location of the vehicle when the goods are installed.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please
note that the Department administers state and state-collected city and county sales
taxes and special district sales and use taxes, but does not administer sales and use
taxes for self-collected home rule cities and counties. You may wish to consult with
local governments which administer their own sales or use taxes about the applicability
of those taxes. Visit our web site at www.colorado.gov/revenue/tax for more
information about state and local sales taxes.
6
7
8

State-administered cities and counties can impose use tax on vehicles and building materials and
supplies, none of which are relevant here.
Pursuant to UCC 4-2-401(2)(b), and in the absence of contractual terms to the contrary, title passes
from the seller to buyer when goods are delivered.
See generally, title 10, article 2, C.R.S.
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This ruling is premised on the assumption that Company has completely and
accurately disclosed all material facts. The Department reserves the right, among
others, to independently evaluate Company's representations. This ruling is null and
void if any such representation is incorrect and has a material bearing on the
conclusions reached in this ruling. This ruling is subject to modification or revocation in
accordance to Department Regulation 24-35-103.5.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling will be made public within 60 days of the date of this
letter. Please let me know in writing within that 60 day period whether you have any
suggestions or concerns about this redacted version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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