Does a 'Write Your Own' flood insurance company owe Texas sales tax on claims-processing services it buys, even though the federal government reimburses it?

Plain-English summary

A private insurance company that writes federal flood policies under the National Flood Insurance Program's "Write Your Own" (WYO) arrangement asked whether it owes Texas sales tax on the claims-processing and claims-adjustment services it buys — given that the federal government reimburses it for those costs. The Comptroller's answer: yes, the company owes the tax.

The reasoning:

• The WYO company is not the federal government, not a corporation wholly owned by the federal government, and not an unincorporated federal instrumentality — so it is not exempt as a governmental entity under Tax Code § 151.309.
• It is not an agent of the federal government. Under the WYO contract, the company acts as a private insurer selling coverage to individuals, can reject business, and must defend its own claims; the contract (Article XVI) expressly states the company is not a federal agent. The federal relationship is fiduciary — to account for taxpayer funds — not agency.
• Federal law does not bar the tax because the company, not the government, is the purchaser of the services. The contract even makes the company liable for "any taxes" incurred in performing the agreement.
• The company is the consumer of the taxable insurance services it buys, because it does not resell them — its customers buy insurance coverage, not insurance services.

Important currency caveat (from the STAR record itself): an editor's note on the published document states that on October 1, 2004, FEMA revised the WYO contract to provide expressly that the companies are fiscal agents of the federal government (though not general agents) — see 44 C.F.R. Pt. 62 App. A and STAR document 201501046L. That later change goes to the very fact (agency status) this 1988 letter turned on, so do not assume this 1988 result still governs.

What this means for you

WYO flood insurers and similar federal contractors

Being reimbursed by the federal government does not make you the government or its agent for Texas sales-tax purposes. If you are the one buying a taxable service and you consume it (rather than reselling it to your customer), expect to owe the tax — regardless of who ultimately funds the cost.

Check whether the rules changed

This particular answer rested on the WYO company not being a federal agent. The published record flags a 2004 FEMA contract revision making WYO companies fiscal agents, and points to a later STAR document. Anyone in this situation today should confirm current treatment rather than rely on the 1988 conclusion.

Common questions

Q: Does federal reimbursement make my purchased services tax-exempt in Texas?
A: No. The Comptroller held that reimbursement does not change who the purchaser is. The WYO company bought and consumed the services, so it owed the tax.

Q: Isn't a WYO company acting for the federal government?
A: In 1988 the Comptroller said no — the contract made it a private insurer, not a federal agent. But a 2004 FEMA contract revision (noted on the STAR record) later called WYO companies fiscal agents, so the analysis may differ now.

Q: Why isn't this exempt under Tax Code § 151.309?
A: Because the company is not the federal government, a wholly federally owned corporation, or a federal instrumentality — the categories that section exempts.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only, and note the STAR editor's note flagging the 2004 contract change. It is based on the facts presented, binds the Comptroller only as to the taxpayer it was issued to, and may no longer reflect current policy.

Citations and references

• Tex. Tax Code § 151.309 — the governmental-entity sales-tax exemption; the Comptroller found the WYO company did not fit any of its categories.
• The WYO contract (Articles III.A and XVI) — making the company liable for taxes and stating it is not a federal agent.
• STAR editor's note — 44 C.F.R. Pt. 62 App. A and STAR document 201501046L, flagging the October 1, 2004 FEMA revision treating WYO companies as fiscal agents.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8807L0910E01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, TX 78774

BOB BULLOCK

Comptroller

July 28, 1988

Dear *:

Thank you for your patience in awaiting our reply to your May 11, 1988

letter. Mrs. Hutcheson asked me to write you.

* is required to pay sales tax on claims processing or claims

adjustment services it purchases even though it is reimbursed by the federal

government.

* is not the federal government, nor is it a corporation wholly

owned by the federal government or an unincorporated instrumentality of the

federal government. * is not exempt as a governmental entity under

Section 151.309 of the Texas Tax Code.

* is not an agent of the federal government. The primary

relationship between a "Write Your Own" (WYO) company and the federal

government is fiduciary to assure that taxpayer funds are accounted for.

* acts as a private company selling insurance coverage to individuals and

has the right to reject business. * is required to defend its claims.

Article XVI of the contract submitted specifically states that * (the

Company) is not an agent of the federal government. Editor's Note: On October 1, 2004, FEMA revised this contract to provide

expressly that the companies are fiscal agents of the federal government, although not general agents. See 44 CFR Pt. 62 App. A. See STAR 201501046L.

Federal law does not prohibit taxation of the insurance services

purchased by ** because *, not the federal government, is the

purchaser of the services. Article III A of the contract states that "The

Company shall be liable for ... expenses, including any taxes... incurred...

in the performance of the obligations under this Agreement."

* is the consumer of the taxable insurance services it is required

to purchase because it does not resell the services to its customer. The

customer purchases insurance coverage; the customer does not purchase insurance

services.

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 Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington

Tax Correspondence