Were Texas insurance claims adjusting or processing services taxable when performed for a surplus-lines or non-admitted insurer covering a Texas risk?

Plain-English summary

Rule 3.355 imposed tax on insurance services performed in Texas when the insured person, entity, or property was in Texas and the customer was an insurance carrier under the rule. The letter said a surplus-lines or unadmitted insurer placing coverage on a Texas risk had to use a surplus-lines agent and therefore met the rule's insurance-carrier definition.

The provider did not have to collect tax if the surplus-lines or unadmitted insurer was not "conducting the business of insurance" under the Insurance Code. But the provider had to presume that services involving a Texas insured person or property were taxable unless the purchaser supplied a properly completed, valid exemption certificate stating that it was not doing insurance business in Texas.

What this means for you

The default for the described Texas-risk claims services was taxable. The letter placed the burden on the service provider to collect tax unless it received the specified exemption certificate from an insurer outside the Insurance Code definition.

Common questions

Did surplus-lines status automatically make the claims service exempt? No. What was the default when the insured person or property was in Texas? The provider had to presume the service was taxable. What supported noncollection? A valid exemption certificate stating that the purchaser was not doing insurance business in Texas.

Citations and references

• Rule 3.355 (insurance services)
• Texas Insurance Code Article 1.14-1 (the attached definition reference identified by the 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/9110L1152B01

Original ruling text

October 28, 1991

Dear ****:

Thank you for your letter of September 25, 1991, concerning the
taxability of insurance claims adjusting or insurance claims
processing services (insurance services) performed for surplus
lines insurers or non-admitted insurers.

Section (b) of Rule 3.355 - Insurance Services imposes a sales or
use tax on insurance services performed in this state if the
individual, entity, or property which is the object of the insurance
is in Texas and the company for which the services are performed
is an insurance carrier as defined in the rule. Section (a)(7) of
the rule defines an insurance carrier to include any insurer that
is licensed or operates under or is required to operate under the
provisions of the Texas Insurance Code.

A surplus lines insurer or an unadmitted (unauthorized) insurer
that places insurance on a risk located in Texas is required to
place the coverage through a surplus lines agent. Because of this
requirement, a surplus lines insurer or authorized insurer meets
the definition of an insurance carrier under the rule.

However, you are not required to collect sales tax if you are
providing insurance services for a surplus lines insurer or an
unadmitted insurer that is not "conducting the business of insurance"
as that term is defined under the Insurance Code. (See the enclosed
partial text of Article 1.14-1 of the Insurance code.)

As a provider of insurance services, section (g) of the rule
requires you to presume that the insurance services performed for
an insurer are taxable when the insured individual or property is
in Texas unless the purchaser of the insurance services issues a
properly completed and valid exemption certificate stating it is
not doing insurance business in Texas.

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

You may call toll free 1-800-252-5555 if you have any questions or
need more information. You may write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division