Could an equipment lessor exclude a separately stated insurance charge from tax, and were damage-waiver fees taxable?

Plain-English summary

The February 16 letter amended the Comptroller's January 29 response.

A separately stated insurance premium paid to an insurance company could be excluded from the taxable amount. Damage-waiver fees associated with rental equipment remained taxable because they were not insurance premiums.

The attached internal memo explains that the lessee completed an insurance application, the lessor collected a separately stated fee equal to 5% of each lease payment, and most of that amount was forwarded to the insurer while the lessor retained a processing percentage. The final February 16 amendment controls the treatment reported on this page.

Common questions

Was a true insurance premium taxable? A separately stated premium paid to an insurance company could be excluded.

Was a damage-waiver fee taxable? Yes.

Why were they treated differently? The damage waiver was not an insurance premium.

Which letter controls within this source? The February 16 amendment, not the earlier January 29 response.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0983G01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller February 16, 1990

Dear *:

The information that you submitted January 19, 1990, concerning
the separately-stated fees that your client charges for insurance
covering rental equipment, has been reviewed. This letter is to
amend my January 29 response.

A separately-stated charge for an insurance premium paid to an
insurance company can be excluded from the tax. Damage waiver
fees associated with rental equipment will continue to be taxable,
since these fees are not insurance premiums.

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 1-800-252-5555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence

BOB BULLOCK
INTEROFFICE COMPTROLLER OF
MEMORANDUM PUBLIC ACCOUNTS

DATE: February 5, 1990

TO: Debbie

FROM: Julie

SUBJECT: Taxability of insurance charges associated with rental equipment

I wrote a letter to Taxpayer (former manager of Tyler Audit
Office) about insurance charges associated with rental equipment.
Actually, I told him that damage waiver fees associated with
rental equipment have been taxable since September 1986. (copies
of previous correspondence attached)

Taxpayer called back today and asked me to reconsider my original
response. I did and then asked Al Van Allen what he thought. He
said it would be a good question for your Friday morning meeting.

The facts are:

1. the lessee fills out an application for insurance with
   **** Company in Dallas along with
   his rental agreement

2. the lessor collects the separately-stated insurance fee
   (5% of each lease payment) from the lessee and, according
   to Taxpayer, "the insurance amount is then forwarded to the
   insurance company, less a percentage retained by my client
   for processing the insurance payment."

Al, Jo Ann and I couldn't recall any situation where we've made a
distinction about insurance charges in this situation. What we've
said is that a separately-stated charge for replacement only is
not taxable. Charges for repairing TPP are taxable. If taxable
and nontaxable charges are not separately stated to the customer,
the total charge is taxable.

QUESTION: ARE THE DAMAGE WAIVER FEES TAXABLE OR NOT TAXABLE IN
THIS PARTICULAR SITUATION?

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller January 29, 1990

Dear *:

Thank you for your letter dated January 19, 1990, concerning the
taxability of fees for insurance covering loss or damage of rental
equipment.

Damage waiver fees associated with rental equipment have been
subject to sales tax since September 1, 1986. Please review the
enclosed copy of a June 1986 "Sales Tax Review."

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 1-800-252-5555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence