Were insurance claims-adjusting services taxable, and could an insurance company buy qualifying subcontracted adjusting services for resale?

Plain-English summary

Texas treated insurance claims adjusting and claims processing as taxable insurance services. The service provider had to collect tax on its total charge, including adjuster, secretarial, telephone, and office-expense charges.

An insurance company could instead give the provider a resale certificate when it acquired the services to transfer them to its own client together with its own taxable insurance services. That resale treatment applied only when the purchased services were essential to performing the buyer's taxable insurance service.

What this means for you

Related expenses were part of the taxable service charge in this ruling. A resale certificate depended on a genuine resale of an essential service, not merely on one insurance business hiring another.

Common questions

Were claims-adjusting and claims-processing services taxable? Yes.

Did tax apply only to the adjuster's base fee? No. The total charge included the listed related expenses.

When could the customer issue a resale certificate? When it intended to transfer the purchased service with its own taxable insurance service and the purchased service was essential to that performance.

Citations and references

• Comptroller Rule 3.355(b) and (g) — insurance services
• Comptroller Rule 3.355(h)(2) — resale of essential 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/9010L1048A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

October 5, 1990

Dear *:

We received your letter questioning the taxability of insurance
adjustments services and related expenses. Insurance claims ad-
justments and insurance claims processing are both taxable in-
surance services. You should collect tax on your total charge
to provide these services including a djusters charges, secre-
tarial, phone, and office expense charges. See section (b) and
(g) of the enclosed Rule 3.355 relating to insurance services.

If an insurance company is acquiring these insurance services
from your company with the intent of transferring your services
to their client along with their own taxable insurance services,
then they may issue your company a resale certificate in lieu
of the tax and collect tax from their customer on their total
charge. However, the insurance services you provide must be es-
sential to the performance of their taxable insurance services
for them to issue you a resale certificate. See section (h)(2)
of Rule 3.355.

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

If you have any questions you may call or write Tax correspon-
dence. You may call toll free 1-800-252-5555, or our regular
number is 512/463-4600. My extension is 3-4658.

Sincerely,
Sherry Buckley
Tax Correspondence