Is a company that provides workplace safety and loss control consulting services to insurance-related and non-insurance clients providing a taxable service in Texas?

Plain-English summary

The Texas Comptroller's Tax Policy Division responded to a company (referred to as "Company A") that provides workplace safety and loss control services. Company A has two categories of clients: (1) clients who receive basic safety education and awareness services as part of their non-subscriber insurance package, where Company A's fee is paid directly by the insurance company, and (2) clients who buy safety and loss control services independent of any insurance contract, choosing from services like workplace compliance surveys with written reports, customized safety manuals, employee handbooks, monthly safety meeting kits, on-site consulting, a safety newsletter, and a toll-free safety hotline.

The Comptroller ruled that both categories are generally taxable as "insurance services" under Rule 3.355. For the first category, the rule's definitions of "insurance inspection" and "insurance loss prevention service" cover activities like surveying property, identifying hazards, and consultations performed in connection with insurance coverage — so Company A must collect tax from the insurance carrier that pays its fee. For the second category, the same taxability applies unless the client has a self-insured plan (as defined in Rule 3.355(a)(8)) rather than a third-party insurance policy. Even where a client's services didn't result in buying more insurance, if the services pertain to the client's existing insurance policy, they're still taxable. The letter also makes clear that the entire charge is taxable, including any portion billed as "consulting," because Rule 3.355(a)(6)'s definition of insurance loss prevention services specifically includes consultations.

What this means for you

Safety and loss control consulting businesses

If your safety consulting fees are paid by an insurance carrier on behalf of a policyholder, or if your clients carry third-party insurance and your services relate to that coverage, your services are likely taxable insurance services under Rule 3.355 — and you're required to collect sales tax from whoever pays you (the insurance carrier or the client).

Businesses with self-insured plans

If your client has a genuine self-insured plan, as defined in Rule 3.355(a)(8), rather than a third-party insurance policy, the safety and loss control services performed for that client are not taxable under this insurance-services theory. But if the client carries any third-party casualty or similar policy and your services pertain to that policy, tax still applies even if the services didn't lead to more insurance being purchased.

Businesses that bill separately for "consulting"

Don't expect billing a portion of your fee as "consulting" to make that piece exempt. This letter confirms the entire charge for insurance loss prevention service is taxable, including any consulting component, because the rule's own definition of the taxable service specifically lists consultations as an example.

Getting an exemption certificate

Rule 3.355(g) requires the seller to collect sales tax on insurance loss prevention services unless it obtains an exemption certificate from the client claiming an exemption (such as based on a self-insured plan).

Common questions

Q: Are safety and loss control services paid for by an insurance company taxable?
A: Yes. The letter says these are taxable insurance services under Rule 3.355, and the seller (Company A) must collect the tax from the buyer, which in this case is the insurance carrier paying the fee.

Q: Are safety and loss control services sold directly to a client (not through insurance) taxable?
A: Yes, unless the client does not carry third-party insurance and instead has a self-insured plan as defined in Rule 3.355(a)(8). Rule 3.355(b) taxes insurance services performed for an insurance carrier, its policyholder, insured, or others pertaining to a policy or policies of insurance.

Q: If the client decides not to buy more insurance after the safety review, are the services still taxable?
A: Yes. The letter gives an example of a client with a casualty policy and a large deductible who, after Company A's services, decides not to buy more insurance to reduce the deductible. Because the services pertained to the client's existing insurance policy, they remained taxable.

Q: Is the "consulting only" portion of the fee exempt?
A: No. The entire charge for insurance loss prevention service is taxable, including any charge for consulting, because Rule 3.355(a)(6)'s definition of "insurance loss prevention service" specifically includes consultations as an example.

Q: Can a business avoid collecting tax on these services?
A: Only by obtaining an exemption certificate from the client claiming an exemption, as required by Rule 3.355(g) — for example, where the client has a qualifying self-insured plan rather than third-party insurance.

Q: Can another business rely on this letter?
A: No. The letter states the opinion is based on the facts presented, and if there are additional or different facts, the opinion may change.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.355 (Insurance Services), including subsections (a)(2) "insurance inspection," (a)(6) "insurance loss prevention service," (a)(8) self-insured plan, (b), and (g)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9509541L

Original ruling text

September 19, 1995

Dear *:

Thank you for your letter of September 11, 1995, concerning
Company A's Texas sales and use tax responsibilities as
a provider of safety and loss control services.

COMPANY A has two categories of clients: (1) clients who
receive
your basic safety education and awareness services as part of
their
non subscriber insurance package, and (2) clients who buy
your
safety and loss control service independent of any insurance
contract.

COMPANY A safety professionals visit clients in the first
category
based on notification from one of several insurance carriers
that
this client has bought a policy through them and, as part of
that
coverage, COMPANY A schedules an appointment to meet with the
client
to review various federal and state compliance requirements,
assists the clients in identifying hazards in the workplace
and
participates in a short safety meeting with the client's
employees to
review the employees' role in this process. COMPANY A's fee
for this
service is paid directly from the insurance company.

COMPANY A's second category of clients are those who contract
for
services on an individual basis. For these clients, COMPANY A
offers a
range of services which, to name a few, include a workplace
compliance survey with a written report, a customized
management
safety manual, employee safety handbooks, monthly safety
meeting
kits, on-site consulting service, a monthly safety newsletter
and
access to out toll-free safety hotline.

Question 1. Are services provided to the insurance related
customers taxable, and if so, to whom (e.g., the insurance
company,
COMPANY A, or the client)?

Answer: The services are taxable insurance services. Section
(a)(2)
of Rule 3.355 (Insurance Services) defines insurance services
to
include "insurance inspection" as "any activity performed to
evaluate risk to property, to survey or value property in
connection
with the furnishing of insurance coverage or any other
similar activity."

Section (a)(6) defines "insurance loss prevention service" as
"any
activities performed in an effort to identify, analyze,
evaluate, control, anticipate and/or eliminate the occurrence
of
accidents, losses, or damage. Examples include: survey
recommendations..consultations.."

The sales tax law requires the seller (COMPANY A) to collect
tax
from the buyer (insurance carrier).

Question 2. Are services provided to non-insurance related
customers taxable? If so, are all services taxable or are
there
exemptions, for example the consulting only portion?

Answer: Yes, unless the clients do not carry third-party
insurance
and have a self-insured plan as that term is defined in Rule
3.355
(a)(8). Rule 3.355(b) taxes insurance services when performed
for
an insurance carrier, its policyholder, insured or others
pertain-
ing to a policy or policies of insurance.

A self-insured plan is not a policy of insurance for sales
tax
purposes. This provision does not make the fee COMPANY A
receives for
performing insurance services nontaxable because the customer
is not buying insurance. For example, a client has a casualty
policy
that has a large deductible. The client has COMPANY A
identify hazards,
conduct safety meetings, etc. As a result of COMPANY A's
services,
the client decides not to transfer any additional risk (by
buying
more insurance to reduce the deductible). Although COMPANY
A's
insurance loss prevention services did not result in the
client buying an insurance policy, the services are taxable.
The services performed
by COMPANY A pertained to the client's existing casualty
insurance policy.

Rule 3.355(g) requires COMPANY A to collect sales tax on
insurance
loss prevention services unless it gets an exemption
certificate
from the client claiming an exemption.

The entire charge for insurance loss prevention service is
taxable, including any charge for consulting (note the
examples in Rule
3.355(a)(6) defining the term specifically includes
consultations.)

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

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

Sincerely,
Eddie C. Washington
Tax Policy Division