If a company performs auto damage appraisal (insurance) services for a self-insured client, are those services taxable, and does the client need to provide anything to document the exemption?

Plain-English summary

A company that provides insurance services -- specifically auto damage appraisals -- for a client (referred to in the letter as CORPORATION X) received a letter from that client claiming the appraisal charges aren't taxable because the client is self-insured. The appraisal company asked the Comptroller to confirm this. The Comptroller agreed the client was right on the substance: Rule 3.355(b) taxes insurance services performed for an insurance carrier, its insured, its policyholders, or others in connection with an insurance policy -- but explicitly exempts services performed under a SELF-INSURED plan, or for a third-party administrator distributing funds under a self-insured plan. So the auto damage appraisal services for this self-insured client are not taxable. But the Comptroller added an important procedural point: Rule 3.355(g) requires the self-insured client to actually issue the appraisal company an exemption certificate, rather than simply asserting the exemption in a letter -- that certificate is what should be on file in place of collecting sales tax.

What this means for you

Insurance adjusters, appraisers, and similar service providers with self-insured clients

Confirm that a client claiming self-insured status backs it up with an actual exemption certificate under Rule 3.355(g), not just a letter or verbal assurance. The underlying exemption for self-insured-plan services is real (Rule 3.355(b)), but you need the certificate on file to support not collecting tax.

Self-insured businesses purchasing insurance-type services (appraisals, adjusting, etc.)

You're entitled to buy these services tax-free, but you need to issue your vendor a proper exemption certificate under Rule 3.355(g) rather than just telling them you're self-insured.

Common questions

Q: Are auto damage appraisal services taxable when performed for a self-insured company?
A: No, per this letter -- Rule 3.355(b) exempts insurance services performed under a self-insured plan.

Q: Is a letter from the client enough to document the exemption?
A: Not on its own, per this letter -- Rule 3.355(g) requires the self-insured client to issue a proper exemption certificate to the service provider.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.355(b) (self-insured plan services not taxable)
• 34 Tex. Admin. Code Rule 3.355(g) (exemption certificate requirement)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9703449L

Original ruling text

March 12, 1997

Dear ***:

Thank you for your letter of February 20, 1997, concerning your
responsibilities as in insurance services provider.

Your company provides insurance services, i.e., auto damage appraisals, for
CORPORATION X. CORPORATION X sent you a letter dated February 13, 1997,
stating that the services you provide are not taxable because CORPORATION X is
self insured.

Section 3.355(b) states:

Insurance services defined in subsection (a) of this section performed on
behalf of an insurance carrier, its insured, its policyholders, or others
pertaining to a policy or policies of insurance for monetary fees, dues, or
other consideration are taxable. These services performed pursuant to a
self-insured plan or for a third-party administrator handling distribution of
funds under a self-insured plan are not taxable.

(Emphasis added.)

Section 3.355(g) requires CORPORATION X to issue your company an exemption
certificate instead of paying sales tax on the auto damage appraisal 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

Enclosure