How did Texas apply sales tax to independent claims-adjusting services for self-insureds, attorney work, percentage-based fees, and insurance-company pools?

Plain-English summary

Independent claims-adjusting services performed for self-insureds were not taxable under the Comptroller's stated view because taxable insurance services had to relate to an insurance policy or the issuance of one.

An adjuster's charges remained taxable when compensation was calculated as a percentage of insurance premiums. The insured paid for insurance coverage, not the adjuster's service; using premiums to calculate the fee did not create a direct contractual relationship between the adjuster and insured.

The letter did not finally decide whether investigation and claim-adjusting services performed by licensed attorneys were taxable when connected with their law practice. Counsel was waiting to see how an Attorney General opinion directed to debt collection would be written. Work not connected with the practice of law was taxable.

The Comptroller had assumed an insurance-company pool was its members effectively doing their own adjusting, so no tax was due. Because the taxpayer's letter appeared to contradict that assumption, counsel requested more facts rather than deciding the taxpayer's pool arrangement.

What this means for you

The historical letter drew distinctions based on an actual insurance policy, whether attorney services were connected with legal practice, and the real relationship among pool members. It did not treat the method used to calculate an adjuster's fee as controlling.

Common questions

Were claims-adjusting services for a self-insured taxable? No, under the conclusion stated in this letter.

Did calculating the fee as a percentage of premiums make it nontaxable? No. The charges remained taxable.

Did the letter decide attorney-connected investigation and adjusting? No. It withheld a conclusion pending an Attorney General opinion; only work not connected with legal practice was expressly treated as taxable.

Did it finally decide the taxpayer's insurance-pool arrangement? No. Counsel requested more details because the submitted description appeared to challenge the office's assumption.

Citations and references

• No statute, numbered administrative rule, or numbered Attorney General opinion is cited in the letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0844A01

Original ruling text

Bob Bullock
Comptroller of Public Accounts
Austin, Texas 78774

November 12, 1987

Dear *****:

Mr. Bullock asked me to answer your letter concerning the application of
the new sales tax provisions to independent claims adjusters.

You asked for an audit of your firm. We will be more than happy to
review your records and see that you are collecting tax correctly as
soon as final rules are adopted. I have advised Mr. Harold Lee, direc-
tor of our audit division, of your request and one of his auditors will
be in touch with you within the next 90 days.

You are correct in stating we have not accepted the argument that the
services of independent adjusters are paid for through the premiums on
insurance policies and as such are exempt. We feel these charges are
too remote from the premiums.

In response to your first question concerning the application of tax to
services performed for "self-insured," our office has determined in-
surance services must be related to a policy of insurance or the issu-
ance of a policy of insurance. Therefore, services performed for "self
insureds" are not subject to tax.

You state you have licensed attorneys performing investigation and
adjusting claim service. It is our opinion their charges are subject to
tax if they are not connected with the practice of law. However, if
they are connected with the individual attorneys' practice, the Attorney
General's opinion may indicate tax should not be collected. I recognize
the opinion was directed to debt collection. However, it could be
written in such a way as to affect all services rendered by attorneys.
Until we see how the opinion is written, we can not give you an opinion
if the investigation and adjustment claim service is connected with the
attorneys' practice of law.

In answer to your third question, we can not answer you until we see the
Attorney General's opinion for the reasons above.

The answer to your fourth question is "no." Your charges will remain
taxable regardless of the method of determining your compensation. The
insured is not paying for your services, but for insurance coverage.
Your fee is merely being calculated as a percentage of the premiums.
There is no direct contractual relationship between you and the insured.

In answer to your final question, it is our understanding the insurance
companies are essentially doing adjusting services for themselves as
members of the pool, the pool being a combination of the companies. for
this reason, we did not believe tax was due. Your letter seems to refute
this assumption. If our understanding is incorrect, please let us know
in greater detail the arrangement between the various companies and the
Pool.

Should you have any further questions or wish to submit additional
information on the last question, please write me at 111 E. 17th Street,
Austin, Texas 78774.

Sincerely,
Wade Anderson
Executive Counsel