Were a toxicologist's consulting services for insurance claims taxable when subcontracted by an attorney or performed directly for an insurer?

Plain-English summary

A toxicologist consulted as an attorney's subcontractor in insured litigation. The Comptroller classified investigating claims or losses under an insurance policy as a taxable insurance service under Rule 3.355(a)(5), even though the provider was not a licensed claims adjuster or insurance company.

The attorney's legal service to the insurer was nontaxable, but the attorney could not issue a resale certificate for the toxicologist's taxable work. Payment by an insurance-company check did not change the result.

Similar consulting performed directly for an insurance company in a non-litigation policy-payoff setting was taxable under Rule 3.355(a)(6). The letter also described when an out-of-state insurer was doing business in Texas and required collection when the person, entity, or property that was the object of the service was in Texas.

What this means for you

The professional title of the consultant and the payer's identity did not control. The service's function—insurance-claim investigation—and the Texas location and business facts controlled the historical result.

Common questions

Was litigation consulting for an insured claim taxable? Yes.

Could the attorney buy the service for resale? No.

Did payment by the insurer change taxability? No.

Was non-litigation claim consulting taxable? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a)(5) and (a)(6), applied to insurance-claim services.
• Texas Tax Code § 151.107, cited for doing 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/8803L0870G11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 15, 1988

Dear ***:

Thank you for your letter of March 2, 1988, concerning the tax
responsibili-
ties of your client, a toxicologist, performing services for its
customers
pursuant to insurance claims.

Consulting activities provided by your client as a subcontractor to an
attor-
ney in litigation covered by an insurance policy fall within the scope of
section (a)(5) of Rule 3.355. The activities to "investigate...claims or
losses" pursuant to a claim against an insurance policy are taxable. The
person providing these services need not be a licensed claims adjuster or
an
insurance company.

The services provided by your client to an attorney are taxable. The
attorney
is providing a nontaxable legal service to the insurance company. The
attor-
ney may not issue a resale certificate to your client.

Your client's sales tax responsibilities are not affected by the fact
payment
is ultimately made by an insurance company check. The method of payment
is
irrelevant.

Consulting activities performed for an insurance company in a
non-litigation
policy payoff setting are also taxable under section (a)(6).

An out-of-state insurance company that is required to be licensed by the
Texas
State Board of Insurance or is engaged in business as defined under
Section
151.107 of the Texas Tax code is doing business in this state. Your
client
would be required to collect sales tax from persons doing or engaged in
business in this state if the individual, entity or property which is the
object of the service is in this state.

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 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