Were toxicologist or engineering consulting services taxable when used to investigate an insurance claim or loss?

Plain-English summary

A law firm hired a toxicologist as a consultant in litigation covered by an insurance policy.

The Comptroller treated the toxicologist's work as taxable insurance service because it involved investigating claims or losses under the policy. The law firm's own legal service could be nontaxable while the toxicologist's service remained taxable, whether the law firm or the insurer paid it.

Consulting for an insurer in a non-litigation policy-payoff setting was also taxable under Rule 3.355(a)(6).

Common questions

Did litigation make the toxicologist's work nontaxable legal service? No.

Who owed tax if the insurer paid directly? The service was still taxable to the paying party.

Was non-litigation claim consulting taxable? Yes.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a)(5) and (a)(6) (Insurance Services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9001L0976A10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

January 24, 1990

Dear ****:

Thank you for your letter dated January 17, 1990, concerning the
taxability of fees charged by a toxicologist hired by your firm
as a consultant in a case covered by an insurance policy.

Consulting activities provided by a toxicologist, engineer, etc.
for an attorney in litigation covered by an insurance policy are
taxable. Please see section (a)(5) of the enclosed Rule 3.355 on
insurance services. The activities to "investigate...claims or
losses" pursuant to a claim against an insurance policy are
taxable.

Although the law firm is providing a nontaxable legal service for
the insurance company, the services provided by the toxicologist
are taxable either to the law firm or to the insurance company, if
the insurance company pays for the service directly.

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

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll-free 1-800-25205555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence