A firm whose main business is insurance adjusting is paid per-claim to re-inspect plumbing work as part of a class-action settlement over faulty pipe -- is that re-inspection service a taxable insurance service?

Plain-English summary

A firm whose main business is insurance adjusting took on work re-inspecting plumbing that had been repaired as part of a class-action lawsuit settlement over faulty pipe. The firm charges a per-claim fee, paid by a company based in Texas, and asked whether these re-inspection charges are taxable. The Comptroller ruled they are not -- the re-inspection service doesn't meet Rule 3.355(a)(1) through (5)'s definition of a taxable insurance service, even though the firm's regular line of business (insurance adjusting) usually does provide taxable insurance services. Because of that mixed business model, the Comptroller suggested the firm request an exemption certificate from its customers for this specific nontaxable re-inspection work under Rule 3.355(g), to document why tax wasn't charged on these particular invoices.

What this means for you

Insurance adjusters and inspection firms taking on non-insurance inspection work

Not every inspection job you perform is automatically a taxable "insurance service," even if that's your main line of business. Check the specific work against Rule 3.355(a)(1)-(5)'s definition -- class-action settlement re-inspection work here fell outside it and came out nontaxable.

Firms that normally provide taxable services but occasionally provide nontaxable ones

When you regularly sell a taxable service but a particular job doesn't fit the taxable definition, get an exemption certificate from the customer for that job (per Rule 3.355(g)) to document the nontaxable treatment.

Common questions

Q: Is re-inspecting plumbing repairs done under a class-action settlement a taxable insurance service?
A: No, per this letter -- it doesn't meet Rule 3.355(a)(1)-(5)'s definition of a taxable insurance service.

Q: Does it matter that the firm's main business is taxable insurance adjusting?
A: The underlying service still isn't taxable, per this letter -- but because the firm normally provides taxable insurance services, it should request an exemption certificate from customers under Rule 3.355(g) for this nontaxable work.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.355(a)(1)-(5) (definition of taxable insurance services)
• 34 Tex. Admin. Code Rule 3.355(g) (exemption certificates)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9703313L

Original ruling text

March 24, 1997

Dear**:

Thank you for your letter of March 19, 1997, asking about your firm's Texas
sales and use tax responsibilities.

Facts: You are re-inspecting work done by plumbers as a result of a
class-action suit for faulty pipe. You charge a fee and are paid by a company
whose office is in Texas. Fees are paid on a "per claim" basis.

Your main business is adjusting for insurance purposes.

Question: Are the inspection services taxable?

Answer: The re-inspecting work is not taxable. The re-inspecting service is
not a taxable insurance service as defined in Section 3.355(a)(1) through (5).
However, you may want to request an exemption certificate from your customers
as outlined in subsection (g) because you normally provide taxable insurance
services.

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