Do insurance companies in receivership have to pay Texas sales tax on goods and services bought to wind down and liquidate the company?

Plain-English summary

This 1992 Texas Comptroller letter ruling answers a question about sales tax on purchases made to wind down an insolvent insurance company. When the State of Texas takes over an insurance company because it is insolvent, the Texas Department of Insurance's Liquidation Division steps in to liquidate the company's assets and pay outstanding claims, with expenses paid out of the company's own cash accounts. The taxpayer who wrote in argued these receiverships shouldn't owe sales tax on goods and services used to wind them down — reasoning that receiverships aren't profit-seeking going concerns, that the state (not stockholders or policyholders) owns and controls them, and that other exempt entities like nonprofit hospitals don't pay sales tax either.

The Comptroller's office didn't accept that general reasoning, but it did find a narrower path to exemption. Texas Tax Code Section 151.309 exempts taxable items sold, leased, or rented to the state or its political subdivisions, and that exemption covers purchases made directly by those entities or by their duly authorized agents. So the answer turns on who is doing the buying: if purchases to liquidate the receivership are made by, on behalf of, or paid for by the Texas Department of Insurance itself (or an agent it has duly authorized), an exemption certificate can be issued to the supplier instead of collecting tax. The letter also flags Tax Code Section 151.310, which exempts certain purchases by qualifying religious, educational, and public service organizations, as a potentially separate avenue depending on the facts.

In short, the exemption isn't automatic just because a company is in state-ordered receivership — it depends on the purchase being properly tied to the state agency doing the liquidating.

What this means for you

Insurance receivership administrators and liquidators

If you're purchasing goods or services to liquidate an insolvent insurer's receivership, whether you owe sales tax depends on the structure of the purchase. If the purchase is made by, on behalf of, or paid for by the Texas Department of Insurance (or its duly authorized agent), you can give the supplier an exemption certificate in lieu of paying tax. If the receivership entity is buying in its own name without that state-agency connection, this letter does not support skipping sales tax just because the company is being wound down.

Accountants and tax professionals

The Comptroller rejected the "not a going concern" and "government-owned" arguments as general theories, and instead grounded the answer specifically in the government-purchaser exemption under Tax Code Sec. 151.309. When advising a receivership client, the key documentation question is whether the Texas Department of Insurance (or a duly authorized agent) is the actual purchaser or payer of record — that's what supports an exemption certificate. Sec. 151.310 (exemptions for religious, educational, and public service organizations) is mentioned as a distinct, fact-dependent possibility, not something automatically available here.

Suppliers to insurance receiverships

If you're selling goods or services to an insurance company in receivership, don't assume the sale is automatically tax-exempt. You would need a valid exemption certificate reflecting that the purchase is being made by, on behalf of, or paid for by the Texas Department of Insurance or its authorized agent before treating the sale as exempt.

Common questions

Q: Is an insurance company in receivership automatically exempt from Texas sales tax because it's controlled by the state?
A: No. The Comptroller specifically noted the receivership isn't exempt merely for being state-controlled or not operated for profit. Exemption depends on the purchase being made by or on behalf of the Texas Department of Insurance.

Q: What has to be true for an exemption certificate to apply?
A: The purchases to liquidate the receivership must be made by, on behalf of, or paid for by the Texas Department of Insurance, or by a duly authorized agent of that Department.

Q: Does the exemption for nonprofit hospitals apply here?
A: The taxpayer raised that comparison, but the ruling doesn't adopt it as the basis for exemption. Instead, it points to the specific government-purchaser exemption in Sec. 151.309, and separately notes Sec. 151.310 covers certain religious, educational, and public service organizations if the facts qualify.

Q: Does this ruling apply to any insurance receivership in any state?
A: This is a Texas Comptroller letter ruling based on the specific facts presented by the requester, and per the letter itself, "other facts though similar may provide a different result." It only concerns Texas sales tax law.

Citations and references

Statutes:

• Tex. Tax Code § 151.309 (exemption for taxable items sold, leased, or rented to this state or a political subdivision, including purchases by duly authorized agents)
• Tex. Tax Code § 151.310 (exemption for certain purchases by qualifying religious, educational, and public service organizations)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1192F01

Original ruling text

September 10, 1992

Dear ****:

This in response to your letter regarding the taxability of goods and services
purchased by insurance companies in receivership.

FACTS

When the State takes over an insurance company due to it being insolvent, it
becomes a receivership. The purpose of the Texas Department of Insurance -
Liquidation Division is to liquidate the assets of the receivership and pay
outstanding claims. Expenses paid for the receiverships come out of the
companies cash accounts.

It is your opinion that these receiverships should not be subject to paying
sales tax for goods and services used in winding down and closing these
receiverships for the following reasons:

1) Insurance company receiverships are not going concerns operating for profit.

2) The State of Texas owns, controls, and has full responsibility for these
receiverships, not stockholders or policyholders.

3) Exempt entities such as nonprofit hospitals, etc. don't have to pay sales
tax.

RESPONSE

Texas Tax Code Sec. 151.309 exempts taxable items sold, leased, or rented to,
this state or a county, city, special district, or other political subdivision
of this state. The exemption applies both to purchases made by these entities
or to duly authorized agents of these entities making purchases on their
behalf.

Therefore, an exemption certificate may be issued to the supplier in lieu of
tax only if the purchases to liquidate these receiverships are made by or on
behalf of, or paid for by, the Texas Department of Insurance or by a duly
authorized agent of the Texas Department of Insurance, Section 151.310 of the
Tax Code provides sales tax exemption on certain purchases by religious,
educational, and public service organizations that qualify for sales tax exempt
status.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information, you may call me at
1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division