Is a fee for acting as an umpire between two arbitrators subject to Texas sales tax?

Subject

Umpire Fees — Insurance Appraisal Arbitrations

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1264E07

Plain-English Summary

This ruling is actually two letters from the Comptroller's Tax Administration Division to the same taxpayer, addressing sales tax on fees for acting as an umpire between two arbitrators.

The first letter, dated October 8, 1993, responds to a described situation: the taxpayer acts as an umpire between two arbitrators, helps resolve a dispute between two parties, and submits a consulting bill based on time and mileage. The Comptroller's response there is straightforward: "The charge to act as an umpire between two arbitrators and a mileage charge associated with the work is not subject to tax." The letter notes this opinion is based on the facts presented, and that different (even similar) facts could produce a different answer.

The second letter, dated October 14, 1993, is described as "add[ing] a comment" to the October 8 letter. It narrows the earlier answer for a specific context: if the taxpayer umpires between arbitrators in insurance arbitrations, the total charge for that service will be taxable. The letter states this result is "pursuant to Comptroller Hearing #30,047."

Read together, the two letters draw a distinction between general umpire/arbitrator services (untaxed, per the October 8 letter) and umpire services performed specifically within insurance appraisal arbitrations (taxed, per the October 14 follow-up and Comptroller Hearing #30,047). Both letters are signed by Bettie Peterson of the Tax Administration Division, and a note at the end references a prior accession number, 9308149L.3 and/or 9308149L.

What This Means For You

If you provide umpire or arbitration-related consulting services: The context of the arbitration matters. General umpire work between two arbitrators — billed on a time-and-mileage basis — was found not taxable in the October 8 letter. But per the October 14 follow-up, that same kind of service becomes taxable when performed specifically in insurance appraisal arbitrations.

If you're in the insurance appraisal/arbitration space: Per this ruling, expect the total charge for umpiring between arbitrators in an insurance arbitration to be treated as taxable, based on the Comptroller's citation to Hearing #30,047.

Facts matter: The October 8 letter explicitly cautions that "different facts, though similar, may result in different answers." The October 14 letter shows exactly that in action — the same general activity (umpiring between arbitrators) gets a different tax answer once the specific fact of "insurance arbitrations" is added.

Q&A

Q: Is a general fee for acting as an umpire between two arbitrators taxable in Texas?
A: Per the October 8, 1993 letter in this ruling, no — "the charge to act as an umpire between two arbitrators and a mileage charge associated with the work is not subject to tax."

Q: Does that answer change if the arbitration involves insurance?
A: Yes. The October 14, 1993 follow-up letter states that "if you umpire between arbitrators in insurance arbitrations, the total charge for your service will be taxable."

Q: What authority does the Comptroller cite for taxing insurance-arbitration umpire fees?
A: The letter states this treatment is "pursuant to Comptroller Hearing #30,047."

Q: Is mileage billed alongside the umpire fee treated differently?
A: In the October 8 letter's answer to the general (non-insurance) situation described, "a mileage charge associated with the work" was included in the same non-taxable determination as the umpire charge itself.

Q: Who signed these letters, and is there a related prior ruling?
A: Both letters are signed by Bettie Peterson of the Tax Administration Division. A closing note references "Previous Accession Number 9308149L.3 and/or 9308149L."

Original ruling text

October 14, 1993

Dear *:

I am writing to add a comment to my letter to you dated October 8, 1993,
regarding sales tax as it applies to your service as an umpire between two
arbitrators.

If you umpire between arbitrators in insurance arbitrations, the total
charge for your service will be taxable. This is pursuant to Comptroller
Hearing #30,047.

If you have any questions or need more information, please write or
call me at 1-800-531-5441, extension 5-0330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

October 8, 1993

Dear *:

This is in response to your letter dated September 20, 1993, regarding
sales tax as it applies to the situation described below.

SITUATION: To act as an umpire between two arbitrators; to assist in
resolution of a dispute between the two parties; submit consulting bill based
on time and mileage.

RESPONSE: The charge to act as an umpire between two arbitrators and a
mileage charge associated with the work is not subject to tax.

This opinion is based on the facts presented. Different facts, though
similar, may result in different answers. If you have any questions or need
more information, please write or call me at 1-800-531-5441, extension 5-0330,
or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9308149L.3 and/or 9308149L