Were compensated risk-management services taxable insurance inspection services in Texas?

Plain-English summary

Texas Insurance Code § 4.04(1), as quoted in the letter, defined a risk manager as a compensated person who examines, assesses, or evaluates risks and advises on reducing them for someone seeking or renewing property and casualty coverage.

The Comptroller found those services within Rule 3.355(a)(2)'s definition of taxable insurance inspection. Risk managers therefore had to apply for a sales-tax permit and collect tax on their service charges.

What this means for you

Under the 1988 analysis, describing the work as risk management did not place it outside taxable insurance services. Its function—evaluating property risk in connection with insurance coverage—matched the rule's insurance-inspection definition.

Common questions

Were risk-management services taxable? Yes.

What taxable category applied? Insurance inspection.

Did risk managers need a sales-tax permit? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a)(2), quoted for insurance inspection.
• Texas Insurance Code § 4.04(1), quoted for the historical definition of a risk manager.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8803L0868A08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 14, 1988

Dear ***:

Thank you for your letter of February 29, 1988, requesting a
determination of the taxability of risk management services under the Limited
Sales Tax Act and Comptroller's Rule 3.355.

The Tex. Ins. Code Ann. Section 4.04(1) defines a "risk manager" as a
person who holds himself out to the public and who for compensation examines,
assesses, or evaluates risks for and provides advice for reduction of risks to
a person who seeks to obtain or renew property and casualty insurance coverage
in this state.

Section (a)(2) of Rule 3.355 defines as a taxable insurance service,
insurance inspection which is "any activity performed to evaluate risk to
property, to survey or value property in connection with the furnishing of
insurance coverage or any other similar activity". (Emphasis added)

Based on the foregoing, services provided by risk managers are taxable.
Risk managers are required to apply for a sales tax permit and to collect sales
tax on the charge for their services.

Enclosed is a list of the Comptroller's Enforcement Offices. Risk
managers should contact the nearest office.

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

Sincerely,
Eddie C. Washington
Tax Policy Division