Were cargo condition and damage surveys taxable in Texas when performed for importers, exporters, cargo underwriters, and other principals?

Plain-English summary

Condition surveys of cargo stowage were not taxable. Those surveys examined stowage and cargo handling and reported conditions so principals could evaluate possible damage and act against responsible parties.

A damage survey connected with an insurance policy was taxable when both conditions were met: the items examined were in Texas, and the customer was engaged in business in Texas. If the customer was not engaged in business in Texas or the claim was not connected with an insurance policy, the customer could give the surveyor an exemption certificate stating that reason.

When a damage survey was taxable, tax applied to the total charge for the insurance service.

What this means for you

The historical letter distinguished preventive or observational condition surveys from claim-related insurance damage surveys. For damage surveys, both the property's Texas location and the customer's Texas business status mattered.

Common questions

Were condition surveys taxable? No.

When was an insurance-related damage survey taxable? When the examined items were in Texas and the customer was engaged in business in Texas.

What if the claim was not connected with an insurance policy? The customer could provide an exemption certificate stating that fact.

What part of a taxable survey charge was taxed? The total charge for the insurance service.

Citations and references

• 34 Tex. Admin. Code Rule 3.286 (engaged in business in Texas)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0856D09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 20, 1987

Dear ***:

Thank you for your letter of October 21, 1987, concerning sales tax on
your
services.

I have restated your explanation of your service below.

Condition Surveys

Examine stowage of cargo onboard ocean vessels, barges, railcars,
etc. at intervals, and provide a report and photographs for our
principals, who are generally importers, exporters and cargo
underwriters from New York, California, Italy, etc.

Our survey report details conditions seen in stowage, cargo
handling in order for our principals to evaluate whether cargo is
damaged, so that they can take appropriate action against
responsible parties.

These surveys are not taxable.

Damage Surveys

In the event of a claim, we are asked to examine ocean carriers,
barges and cargo in warehouses for damages anywhere in the United
States or overseas for our principals. We report conditions seen
relative to the cause, nature and extent of any damage that may or
may not exist so that they may consult with their customers and/or
principals in order for them to arrive at a mutually satisfactory
disposition of the commodity involved.

When the claim is in connection with an insurance policy, tax is due on a
damage survey if:

• The items being examined are located in Texas, and
• Your customer is engaged in business in Texas. I am enclosing Rule
  3.286, which defines engaged in business in Texas.

If your customer is not engaged in business in Texas or the claim is not
in
connection with an insurance policy, your customer should give you an
exemption certificate in lieu of tax. The certificate should state that
your
customer is not engaged in business in Texas or ;the claim is not in
connection with an insurance policy.

If the survey is taxable, then tax is due on the total charge for the
insurance service.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-531-5441 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Adina Whittemore
Tax Policy Division