Does a medical case management / disability management consultant have to collect Texas sales tax on its services to insurance companies?

Plain-English summary

A company that provides medical case management services asked the Comptroller's office whether it must collect Texas sales and use tax as a medical case management consultant. The Comptroller's response walks through the statutory and rule framework for taxing "insurance services" rather than giving a flat yes-or-no answer, because the taxability depends on which specific activities the consultant performs.

Texas Tax Code Sec. 151.0039 defines "insurance service" to include insurance loss or damage appraisal, insurance inspection, insurance investigation, insurance actuarial analysis or research, insurance claims adjustment or claims processing, and insurance loss prevention service. Tax Code Sec. 151.0101(a)(9) lists insurance services among Texas's taxable services. Comptroller Rule 3.355(a)(5) defines insurance claims adjustment and claims processing as any activity to supervise, handle, investigate, pay, settle, or adjust claims or losses, and Rule 3.355(a)(3) defines insurance investigation as any activity performed to evaluate an individual's eligibility or qualifications for insurance coverage or for the payment of benefits, or similar activities. Rule 3.355(b) taxes these insurance services when performed for an insurance carrier, its policyholder, insured, or others in connection with a policy of insurance.

The letter explains that a provider of insurance services must obtain a sales tax permit (Rule 3.355(g)) and collect sales tax on the entire sales price charged to the customer, including professional time, travel time, and other reimbursable expenses such as phone calls and mileage. The Comptroller enclosed an edited letter previously sent to another medical case management company — noting that company provided insurance services along with other, nontaxable services — and enclosed Comptroller's Decision No. 27,950, involving a taxpayer who performed "case by case assessment" of insured clients during recovery or rehabilitation.

The material the requester submitted describes medical case management as an ongoing objective assessment, planning, coordination, monitoring, and evaluation of an injured or ill person's health care needs — working with employers, injured workers, insurance carriers, and medical providers on workers' compensation, liability, long-term disability, and group health claims. Because the Comptroller's answer turns on which of these activities amount to "insurance investigation" or "insurance claims adjustment/processing" under the rules, the letter functions as guidance on how to analyze the services rather than a definitive ruling that all medical case management is (or is not) taxable.

What this means for you

Medical case management and disability management consultants

If your case management activities involve evaluating an individual's eligibility for insurance coverage or benefits, or supervising, handling, investigating, paying, settling, or adjusting claims or losses, those services fall within the "insurance services" definition and are taxable when performed for an insurance carrier, policyholder, insured, or others connected with a policy. If you provide taxable insurance services, you must hold a Texas sales tax permit and collect tax on your entire charge — including professional time, travel time, and reimbursed expenses. Portions of your work that are pure consulting or clinical case management, separate from claims investigation/adjustment or coverage-eligibility evaluation, may not be taxable; review your specific service mix against Rule 3.355.

Insurance companies and self-insured employers purchasing these services

Expect vendors performing insurance investigation, claims adjustment, or claims processing functions — even when framed as "medical case management" or "disability management" — to charge Texas sales tax on those components of their fees, including travel and incidental expenses billed as part of the service.

Accountants and tax professionals

This letter is a useful illustration of how the Comptroller applies the Rule 3.355(a)(3) and (a)(5) definitions to a service that isn't labeled "insurance services" on its face. The key question is functional: does the activity involve evaluating eligibility/benefits, or handling/investigating/paying/settling/adjusting a claim? If so, tax applies to the full charge, not just a "claims" portion.

Common questions

Q: Is medical case management automatically a taxable insurance service in Texas?
A: Not automatically. It depends on whether the specific activities performed meet the Rule 3.355 definitions of insurance investigation or insurance claims adjustment/processing — evaluating eligibility for coverage or benefits, or supervising/handling/investigating/paying/settling/adjusting claims or losses.

Q: If some of the services are taxable insurance services, does tax apply to the whole invoice?
A: For the taxable insurance-service components, yes — Rule 3.355(g) requires tax to be collected on the entire sales price, including professional time, travel time, and reimbursable expenses like phone calls and mileage. Separate nontaxable consulting services would not be subject to this tax.

Q: Does a medical case management company need a Texas sales tax permit?
A: If it provides insurance services as defined in the statute and rules, yes — Rule 3.355(g) requires a sales tax permit for persons providing insurance services.

Q: What Comptroller precedent did the letter point to?
A: It referenced an edited letter previously issued to another medical case management company (which provided insurance services along with other nontaxable services) and Comptroller's Decision No. 27,950, involving a taxpayer performing case-by-case assessments of insured clients during recovery or rehabilitation.

Citations and references

• Tex. Tax Code Sec. 151.0039 (defining "insurance service")
• Tex. Tax Code Sec. 151.0101(a)(9) (listing insurance services among taxable services)
• 34 Tex. Admin. Code Sec. 3.355(a)(3) (defining insurance investigation)
• 34 Tex. Admin. Code Sec. 3.355(a)(5) (defining insurance claims adjustment and claims processing)
• 34 Tex. Admin. Code Sec. 3.355(b) (taxing insurance services performed for a carrier, policyholder, insured, or others connected with a policy)
• 34 Tex. Admin. Code Sec. 3.355(g) (permit and collection requirements)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9501906L

Original ruling text

January 11, 1995

Dear Ms. **:

Thank you for your letter of January 10, 1995, concerning your company's
responsibility to collect Texas sales and use tax as a medical case management
consultant.

Texas Tax Code Sec. 151.0039 defines "Insurance service" to mean "insurance
loss or damage appraisal, insurance inspection, insurance investigation,
insurance actuarial analysis or research, insurance claims adjustment or claims
processing, or insurance loss prevention service." Texas Tax Code Sec.
151.0101(a)(9) defines "taxable services" to include insurance services.

Rule 3.355(a)(5) amplifies the definition of insurance adjustment and claims
processing to mean "any activities to supervise, handle, investigate, pay,
settle, or adjust claims or losses." Rule 3.355(a)(3) defines insurance
investigation as "any activity performed to evaluate an individual's
eligibility or qualifications for insurance coverage, or for the payment of
benefits, or any other similar activities." (Emphasis added.)

Rule 3.355(b) taxes insurance services when performed for an insurance carrier,
its policyholder, insured or others pertaining to a policy or policies of
insurance.

Rule 3.355(g) requires a person providing insurance services to get a sales tax
permit and to collect sales tax on the entire sales price of the services. This
means sales tax must be collected on the charges to the customer for
professional time, travel time, and other reimbursable expenses, e.g., phones
calls, mileage, etc.

Enclosed is an edited letter to a company that provides medical case management
services. The letter points out that the company provided insurance services
along with other nontaxable services. Also enclosed is Comptroller's Decision
No. 27,950. The taxpayer or petitioner provided "case by case assessment" of
insured clients during the recovery or rehabilitation process.

I am mailing you a sales tax application packet under separate cover along with
the Limited, Sales, Excise and Use Tax Law and pertinent rules. The completed
documents may be mailed or returned to our ** office at the address
below.

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

You may call toll me free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Administration Division, Comptroller of
Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division

cc: David Cain, Manager
Comptroller of Public Accounts

Enforcement Division

Tax Assistance

January 10, 1995

Comptroller of Public Accounts
Capital Station
Austin, Texas 78774
Attn: Policy Administration

On this date, I visited the ** office of the Comptroller of Public
Accounts requesting verification as to whether or not our services, as a
medical case manager, were taxable. Upon completion of review of the written
information that I provided, the representative stated that consulting is not a
taxable service in Texas.

I requested this information in writing for our records and I was instructed
that written documentation should be requested from the Austin office.
Therefore, I am enclosing the same information the ** office reviewed
and requesting in writing that our services are not subject to a sales tax.

Thank you for your time and attention in this matter.

Sincerely,

Medical Case Manager

** is an independent, **** Texas based medical case
management firm that works with employers, injured workers, and all other
parties involved in the work related injury or group health illness. Our goal
is to provide effective and efficient cost containment services that benefits
all those involved in the claims process. The ultimate goal is to restore the
injured or ill person to their maximum level of function.

** offers professional medical cost containment services for workers'
compensation and self-insured claims in the areas of medical case management,
which includes medical assessments by interview, coordination of home care
and/or placement in a rehabilitation facility, working with the internal case
manager to coordinate discharge planning and gather information regarding
durable medical equipment.

Role of the Medical Case Manager:

Medical Case Management is a process which implements assessing, planning,
coordinating, monitoring and evaluating services necessary to meet the injured
or ill person's health care needs in order to attain quality and cost effective
care.

The Medical Case Manager provides an ongoing objective assessment of the
injured or ill person, the family and the treatment plan to maximize quality of
care while minimizing costs on a long-term basis. The goal is to facilitate
optimal outcomes for all parties involved, the insurance carrier, the injured
worker or ill person, employer, and medical providers, through advocacy,
objectivity and liaison/collaboration with emphasis on continuity of care,
effective communication, and coordination of appropriate health care services.

PURPOSE

**, is a medical case management firm that works to provide effective
and efficient cost containment services that benefit all those involved in the
claims process. The ultimate goal is to assist in restoring the injured or ill
person to their maximum level of function.

PHILOSOPHY AND OBJECTIVES

Medical Case Management services are provided by personnel trained and
experienced in rehabilitation and nursing.

The objectives of a medical case manager are to:

1) evaluate the injured or ill person's progress and needs by identifying
potential problems and implementing practical and effective solutions.

2) provide cost containment during the injured worker's rehabilitative period
prior to return to work or assignment of impairment rating and maximum medical
improvement (MMI).

3) assist the injured worker through the treatment process to a timely return
to light or full duty employment of MMI.

Medical Case Management is a process which implements assessing, planning,
coordinating, monitoring and evaluating services necessary to meet the injured
or ill person's health care needs in order to attain quality and cost effective
care.

The Medical Case Manager provides an ongoing objective assessment of the
injured or ill person, the family and the treatment plan to maximize quality of
care while minimizing costs on a long-term basis. The goal is to facilitate
optimal outcomes for all parties involved, such as, the insurance carrier,
injured or ill person, employer and medical providers, through advocacy,
objectivity and liaison/collaboration with emphasis on continuity of care,
effective communication, and coordination of appropriate health care services.

**, provides rehabilitation services to all disability exposure, such
as, workers' compensation, liability, long-term disability and accident and
group health claims.