Were administrative and computerized billing services for a self-funded insurance plan taxable?

Plain-English summary

A self-funded association insurance plan bought excess-loss coverage and paid a monthly fee for claims processing, member billing, and reports required by the excess-loss carrier. The Comptroller said tax was not due on insurance services provided under a self-funded plan or stop-loss coverage purchased by that plan.

The letter separately treated computerized “accounts payable billing” as taxable data processing. If that component was 5% or less of the total administrative-services bill, no tax was due. If it exceeded 5%, the data-processing charge had to be separately stated and taxed.

The preserved body uses the term “accounts payable billing”; this page does not substitute STAR's different accounts-receivable label.

Common questions

Were the self-funded-plan insurance services taxable? No.

Was computerized billing taxable? Yes as data processing, subject to the stated 5% threshold.

What happened above 5%? The data-processing amount had to be separated and taxed.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8901L0928E07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 13, 1989

Dear **:

Mr. Cherry asked me to answer your letter concerning insurance
services.

I understand the trust is a self-funded insurance plan for the
benefit of the members of the association. The plan purchases
excess loss coverage for individual claims which exceed the spe-
cific deductible and for aggregate losses on the group as a whole.
** receives a monthly service fee in return for process-
ing claims and administrative services including billing the mem-
bers for their contributions to the plan and completing monthly
reports required by the excess loss carrier.

Tax is not due on insurance services provided pursuant to either
a self-funded insurance plan or to stop loss insurance coverage
purchased by a self-funded insurance plan. Our rule will be
amended to reflect this policy.

However, computerized accounts payable billing is a taxable data
processing service. If the charge for data processing is 5% or
less of the total bill for administrative services, then no tax is
due on the service. If the charge is greater than 5%, then the
charge for the data processing should be separated and tax col-
lected on that amount.

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, please call
our toll-free number 1-800-531-5441. The regular number is
512/463-4614. You may write me at the Taxability Section, Legal
Services Division.

Sincerely,
Adina Whittemore
Taxability Section
Legal Services Division