Were claims-adjusting and insurance-investigation services taxable when provided for municipal coverage?

Plain-English summary

The Comptroller said insurance claims-adjusting and investigation services were not taxable when provided to a third-party administrator distributing funds for a self-insured municipality. The letter cited Rule 3.355's treatment of insurance services.

The result changed when the purchaser was an insurance carrier that insured a municipality outside stop-loss coverage for a self-insured plan. Those charges were taxable because the carrier itself was not one of the exempt governmental entities, even though its customer was a municipality.

Common questions

Were services for a self-insured municipality's administrator taxable? No under the stated facts.

Were the same services taxable when sold to the municipality's insurer? Yes, unless the stated self-funded or stop-loss treatment applied.

Did the municipality's exemption transfer to the insurance carrier? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8901L0924C13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

January, 9, 1989

Dear *****:

Thank you for your letter of December 27, 1988, regarding the tax-
ability of insurance claims adjusting and insurance investigations
provided to a managing general agency for a municipality insurer.

The charges for providing the insurance services described in the
preceding paragraph are not taxable if they are provided to a
client that is a third party administrator distributing funds for
a self-insured municipality. See sections (a)(5), (10) and (b)
of the enclosed Rule 3.355 - Insurance Services.

However, these charges made to an insurance carrier that insures
a municipality (not pursuant to stop-loss coverage for a self-
insured plan) would be taxable. The sales tax law exempts the
State of Texas and its political subdivisions (counties, cities,
special districts, etc.) from the payment of sales tax on purchas-
es of taxable items which includes taxable services. An insurance
carrier is not exempt because it is not one of the exempt
governmental entities listed in this paragraph.

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

If you have any questions or need more information, you may call
toll-free 1-800-252-5555, ext. 3-4683. The regular number is
512/463-4600. You may write me at Tax Correspondence, Comptroller
of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence