Which local recording agent fees were taxable under Texas sales-tax rules after Senate Bill 324?

Plain-English summary

Senate Bill 324 authorized local recording agents to charge for services outside the commissions paid by insurance companies, including delivery, printing, electronic-mail, telephone-transmission, and similar client-related costs. The Comptroller said those authorized fees were not subject to sales or use tax, although the agent still had to pay tax on taxable property or services purchased for the client.

A new-client setup fee for establishing a file and marketing a new risk was not taxable. A fee for a photograph of insured property was a taxable sale or purchase of tangible personal property, so the agent had to pay tax to the photographer.

A fee for obtaining an insurance applicant's motor-vehicle record was a taxable information service. The agent owed tax on the amount above the Texas Department of Public Safety's charge; a separately stated DPS amount was not taxable.

What this means for you

Insurance agencies should identify what each fee actually buys. A broadly authorized service fee was not taxable here, but tangible photographs and information-service markups received different treatment.

Common questions

Was the new-client setup fee taxable? No. Was the picture fee taxable? Yes. Was the motor-vehicle-record fee taxable? Yes above the separately stated DPS charge. Did the agent owe tax on taxable client-related purchases? Yes.

Citations and references

• Senate Bill 324

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9112L1149F07

Original ruling text

December 23, 1991

Dear ****:

Thank you for your letter of November 5, 1991, concerning S.B. 324
which authorizes local recording agents to charge fees for services
rendered that are not contemplated in commissions paid to them by
insurance companies.

The bill states that, "Those services may include special delivery
charges, printing and reproduction costs, electronic mail costs,
telephone transmission costs, or similar costs that the local
recording agent may incur on behalf of the client."

The fees allowed by the bill are not subject to sales or use tax.
You should be aware that certain costs incurred "on behalf of the
client" may be purchases of tangible personal property or services
that are subject to tax. The local recording agent should pay the
tax to the seller or service provider. The tax paid is then just
another cost recovered via the fee(s).

The "new client set up fee" is not taxable. This fee contemplates
the extra service required to set up a file and market a new risk.

The "picture fee" is a charge for a picture of the insured property
which is submitted along with the insurance application to the
insurer. The picture fee is a taxable sale or purchase of tangible
personal property. The agent is required to pay tax to the
photographer.

The "MVR fee" is a charge for getting a copy of the insurance
applicant's driving record for the insurer. The driving record is
sent with an application for motor vehicle insurance coverage.
This is a taxable information service. The agent is required to
pay sales tax on any amount above the amount charged by the Texas
Department of Public Safety for the driving record. A separately
stated amount charged by the DPS is not taxable.

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