Were Texas local recording agents' separately authorized client-service fees subject to sales or use tax?

Plain-English summary

Senate Bill 324 authorized local recording agents to charge clients for services not covered by the commissions insurance companies paid them. The letter listed examples from the bill: special delivery, printing and reproduction, electronic mail, telephone transmission, and similar client-related costs.

The Comptroller said the authorized fees were not subject to sales or use tax. But an agent could incur taxable costs while acting for the client, including purchases of tangible personal property or taxable services. The agent had to pay that tax to the seller or service provider and could then recover it as another cost through the fee.

The letter also cautioned that Senate Bill 324 amended Article 21.14 of the Insurance Code, not Chapter 151 of the Tax Code. It therefore did not change the separate tax treatment of insurance services described by Rule 3.355.

What this means for you

An insurance agent should distinguish the nontaxable client fee addressed here from the taxable inputs the agent buys and from any service that independently falls within Texas's taxable insurance-services rule.

Common questions

Were the Senate Bill 324 fees taxable? No. Could the agent buy taxable items or services for the client? Yes, and the agent owed that tax to the provider. Did the bill change the tax on insurance services? No; the letter said it did not amend Tax Code Chapter 151.

Citations and references

• Senate Bill 324
• Texas Insurance Code Article 21.14
• Texas Tax Code Chapter 151
• 34 Tex. Admin. Code Rule 3.355

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1151D10

Original ruling text

January 14, 1992

Dear *****:

Thank you for your letter of November 22, 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 transmissions 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).

I want to point out that the bill amends Article 21.14 of the Texas
Insurance Code. This bill does not amend Chapter 151 of the
Texas Tax Code which defines and taxes insurance services that
are defined in section (a) of the enclosed Rule 3.355 - Insurance
Services.

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