Does a company that processes automobile insurance claims as the insurer's agent have to collect sales tax on the payments and on its administration fee?

Plain-English summary

A company (organized out of state, no New York office or employees) provides automobile insurance claims administration. When an insured's car is damaged, the company — acting as agent of the insurer — confirms coverage and the deductible, lets the insured choose a repair garage, receives the garage's invoice (parts, labor, and any sales tax), forwards it to the insurer, and, once the insurer pays, passes that payment through to the garage in the exact same amount. It earns a separately negotiated administrative fee from the insurer. It asked whether it must collect sales tax on the amounts it handles or on its fee.

The Office of Counsel said no:

• An insurer's payment of a property-damage claim to an insured or its designee isn't subject to sales tax, so the company's processing and payment of that claim as the insurer's agent isn't either.
• Tax Law § 1105(c)(3) taxes the service of repairing tangible personal property, and auto repairs fall within it — but the company doesn't perform or buy repairs. The repair garage the insured selects does the work and is the party that must collect and remit the sales tax on the repair.
• The company's administrative fee is for a service that isn't among the enumerated taxable services, so the fee isn't taxable.

The opinion expressly does not address nexus — whether the company is a "vendor" required to register — because Advisory Opinions don't decide nexus questions.

What this means for you

Third-party claims administrators and BPO/processing firms

Acting as a conduit/agent — moving the insurer's claim money to the repairer without marking it up and without doing the repair — is not a taxable service, and a separately negotiated administration fee for that work isn't taxable either.

Auto repair shops

The tax obligation stays with you, the shop performing the repair. Don't assume a claims administrator in the middle collects or remits the sales tax on the job — § 1105(c)(3) puts that on the repairer.

Accountants

Two separate questions live here: (1) is the service taxable (no, it's not enumerated), and (2) is there nexus (not decided — Advisory Opinions don't reach nexus). Don't read this as a nexus ruling.

Common questions

Q: The company handles money that pays for taxable car repairs — why isn't it collecting the tax?
A: Because it doesn't perform or buy the repair; it just processes the insurer's claim payment as agent. The repair garage collects and remits the tax on the repair.

Q: Is the administration fee taxable?
A: No. It pays for a claims-processing service that isn't among New York's enumerated taxable services.

Q: Does this mean the company has no New York filing duty?
A: Not necessarily — the opinion doesn't decide nexus. It only decides that the service and fee aren't taxable.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law § 1105(c)(3) (taxable service of installing, maintaining, servicing or repairing tangible personal property)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-61s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(61)S
Sales Tax
November 17, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
[ REDACTED ] (Petitioner). Petitioner asks whether it must collect and remit sales tax on amounts paid
by insurance companies in the course of providing automobile insurance claims administration services.1
Facts
Petitioner is a Kansas limited liability company with a principal place of business in Florida.
Petitioner does not maintain an office in New York State. Petitioner does not have employees,
independent contractors, agents, or any other representatives in New York State. Petitioner does not sell,
or resell, any tangible personal property. Petitioner’s sole activity is to provide claims processing services
for insurance companies. Petitioner is not in the business of repairing automobiles; rather, Petitioner
manages repair claims as agent of insurance companies for a separately negotiated fee. Petitioner is not
registered as a sales tax vendor in New York State, and does not collect sales tax on monies paid to
automobile repair shops on behalf of insurance companies for repairs of covered damages to an insured’s
vehicle.
Petitioner focuses only on the administration of claims for the repairs of automobile glass and
other physical damage to automobiles. Insurance companies all have claims departments; however, some
insurance companies outsource their claims handling to Petitioner. Petitioner offers automated claims
services 24 hours a day, 7 days a week. Petitioner neither purchases tangible personal property for repairs
nor performs any repair services. Rather, all repair services are performed by repair garages chosen by an
insured. At no time does Petitioner have any control over repair activities. Petitioner’s only connection
with the repair garages is that Petitioner facilitates payment by an insurance company for the repairs to an
insured’s vehicle.
In some instances, Petitioner is associated with a network of repair garages in locations across the
country, including New York State. Those repair garages enter a participation agreement with Petitioner
(Participation Agreement). Petitioner does not solicit any repair garage to be part of the network or
advertise on any website that would allow “click through” access to Petitioner’s website. Rather, any
repair garage that wants to be part of the network must register on Petitioner’s website and electronically
accept the terms and conditions of Petitioner’s Industry Services Registry (Registry). Once registered and
accepted through the Registry, the repair garage is eligible to be reimbursed by the insurance company
pursuant to the Participation Agreement for repairs performed on an insured’s automobile.

Petitioner also asks whether it is a vendor (i.e., has nexus with New York), which would require it to register for
sales tax purposes and collect and remit State and local sales tax. However, nexus questions are not addressed in
Advisory Opinions and, therefore, we provide no opinion on this issue.
1

-2-

TSB-A-20(61)S
Sales Tax
November 17, 2020

In other instances, the insurance companies have their own affiliated network of repair garages.
For example, Petitioner’s largest contract is with a national insurance company (National Insurance
Company). The National Insurance Company has each repair garage enter its own participation
agreement (Insurance Company Participation Agreement). Because Petitioner is the outsourced claims
department for the National Insurance Company, the Insurance Company Participation Agreement
identifies Petitioner as the program administrator responsible for providing administrative services, such
as a call center and invoice processing.
Petitioner administers claims using both Electronic Funds Transfer (EFT) technology and
Electronic Data Interchange (EDI) technology. Approximately 90% of Petitioner’s transactions are done
entirely via EFT and EDI technology and no paper invoice is involved. If a repair garage is unaffiliated
(i.e., the insured exercises his or her option to have repairs made by an out-of-network repair garage), the
repair garage issues a paper invoice to the insurance company and Petitioner converts the invoice to an
electronic format for processing via EFT and EDI technology.
To process a claim, Petitioner first confirms coverage of the damage and any applicable
deductible. The insured then chooses a repair garage and gets the automobile repaired. An invoice is
issued by the repair garage to the insurance company. Petitioner relies on the repair garages to collect the
proper sales tax. Once the work is performed, the repair garage sends Petitioner an invoice for the parts,
services, and any applicable sales tax. Petitioner forwards the invoice to the insurance company for
confirmation of the coverage for the repair. The insurance company reviews the coverage confirmation
and then remits payment for the invoice to the Petitioner. Petitioner then forwards the payment to the
repair garage. Only after Petitioner receives the payment of the repair garage invoice from the insurance
company does Petitioner issue payment to the repair garage. All payments are made electronically, and
the amount paid to the Petitioner is the same amount Petitioner pays to the repair garage. Petitioner is
paid a separately negotiated administrative fee by the insurer for its services.
Analysis
Sales tax is imposed on retail sales of tangible personal property, and on certain enumerated
services. Petitioner provides the service of automobile insurance claim processing to certain insurance
companies. Petitioner works with automobile repair garages selected by insured individuals to receive
and process automobile damage claims, and processes payments to the garages for covered repairs under
an insured individual’s policy for such repairs. Petitioner asserts that it acts as agent for the insurance
company in this process and does not purchase tangible personal property or services. Rather, it
processes payments for covered automobile repairs under the terms of an insured’s policy with an insurer.
Petitioner receives payment for covered repairs from an insurer and remits the payment to the repair
garage in the exact amount it received from the insurer. Petitioner is paid a separately negotiated
administrative fee by the insurer for its services.
We conclude that Petitioner’s services are not among the services subject to sales tax. An
insurer’s payment of a property damage claim to an insured or its designee under a contract of insurance
is not subject to sales tax. It follows, therefore, that Petitioner’s processing and payment of such claims
as agent of an insurer is not subject to sales tax.

-3-

TSB-A-20(61)S
Sales Tax
November 17, 2020

Tax Law § 1105(c)(3) imposes sales tax on the services of installing, maintaining, servicing or
repairing tangible personal property not held for sale in the regular course of business. Automobile
repairs come within the ambit of this section. However, we conclude that Petitioner is not selling or
purchasing automobile repairs. Petitioner acts as an agent of an insurance company for the purpose of
administering automobile damage claims. Petitioner does not engage in repairs or purchase repairs on
behalf of an insured. Repairs are performed by an automobile repair garage selected by the insured.
Petitioner processes the payment for covered repairs as agent of the insurer. Accordingly, Petitioner is
not performing a repair service and is not required to collect or remit sales tax on those services. Rather,
it is the person performing such repairs (in this case, the repair garage) that must collect and remit sales
tax, as applicable.
Finally, Petitioner separately negotiates a fee with insurers for the service of processing
automobile damage claims. Because this service is not among the services on which sales tax is imposed,
the Petitioner’s fee is not subject to sales tax.

DATED: November 17, 2020

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts
set forth therein and is binding on the Department only with respect to the person or
entity to whom it is issued and only if the person or entity fully and accurately describes
all relevant facts. An Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific time period at
issue in the Opinion. The information provided in this document does not cover every
situation and is not intended to replace the law or change its meaning.