Was a pager loss or damage protection fee taxable when it covered lost, stolen, destroyed, or damaged equipment?

Plain-English summary

The source contains two February 2 letters addressing different coverage language.

A loss-protection fee strictly covering pagers that were lost, stolen, destroyed, or damaged beyond repair was not taxable. Maintenance and repair fees were taxable.

The companion letter explained that replacement-only insurance for lost or stolen pagers was nontaxable, but a premium that also covered repairable damage operated as a damage waiver and was fully taxable. Under the submitted agreement's broad language covering a unit not returned in good condition, the Comptroller initially viewed part of the fee as taxable damage-waiver coverage.

The two letters can be read together: replacement or beyond-repair loss coverage was nontaxable, while maintenance, repair, and repairable-damage coverage was taxable.

Common questions

Was loss or theft coverage taxable? Not when strictly limited to replacement for loss, theft, destruction, or damage beyond repair.

Were repair and maintenance fees taxable? Yes.

What if one premium included damage-waiver coverage? The entire charge was taxable under the companion letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0980G09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller February 2, 1990

Dear ****:

I appreciate your taking the time to distinguish between contracts
issued to Corpus Christi residents and those in the remainder of
Texas.

Because the "Loss/Damage Protection Fee" strictly covers pagers
that are lost, stolen, destroyed or damaged beyond repair, the
charge is not subject to tax. However, you must charge tax to
your customers on any fee you make for maintenance or repair.

This opinion is rendered based on the facts you presented. Other
facts, though similar, may yield different results.

Feel free to call or write me if you have questions. You can
reach me by calling toll free 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller February 2, 1990

Dear ****:

Insurance coverage on pagers is not taxable if the policy is
issued strictly to replace lost or stolen equipment. But, if part
of the premium goes to provide damage waiver, the total charge is
taxable. Labor to repair tangible property became taxable as of
October 2, 1984. And, damage waivers are treated as prepayments
of repair charges.

By the same token, insurance deductibles are not taxable if they
are paid to replace equipment that has been lost or stolen. The
reason is that we do not consider a sale to have taken place if a
customer loses equipment or if it is stolen from them.

The Subscriber Service Agreement you sent contains provision for a
"Loss/Damage Protection Fee." It includes the following language,
"...if a unit is lost, stolen .... or for any other reason not
returned in good condition. This leads me to believe that
part of the payment provides for damage waiver. And so, the total
charge is taxable.

This opinion is rendered based on the facts you presented. Other
facts, though similar, may yield different results.

Feel free to call or write me if you have questions. You can
reach me by calling toll free 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division