Is an independent insurance/risk-management consultant -- who reviews clients' insurance policies for coverage adequacy and risk retention -- required to hold a sales tax permit and charge sales tax, even though the consultant doesn't think this work fits within the tax code?

Plain-English summary

A newly self-employed insurance consultant in Texas asked about their sales tax responsibilities. After nine years working at a Dallas-area insurance consulting firm that charged sales tax on all its consulting engagements, the consultant started doing similar work independently -- reviewing companies' insurance policies to determine whether they have the right coverage, whether the policy matches their needs, and whether they can adjust how much risk they retain. When the consultant called the Comptroller's Austin office, they were told (incorrectly, as this letter later clarifies) that no sales tax permit was needed for this work, which left them puzzled about why their former employer had been paying the tax all along.

The Comptroller's written response corrected the phone guidance: services provided by risk managers are taxable, and risk managers must apply for a sales tax permit and collect sales tax on their service charges. Texas Insurance Code § 21.14-1(1) defines a "risk manager" as a person who, for compensation, holds themselves out to the public and examines, assesses, or evaluates risks and advises on risk reduction for someone seeking to obtain or renew property/casualty insurance coverage -- exactly the described consulting work. Rule 3.355(a)(2) defines "insurance inspection" broadly to include any activity evaluating risk to property or valuing property in connection with furnishing insurance coverage, or any similar activity, and Rule 3.355(b) makes these insurance-related services (including risk-manager evaluations) taxable when performed for others regarding an insurance policy.

What this means for you

Independent insurance consultants and risk managers

Don't rely on informal phone guidance about your sales tax obligations -- this letter shows that incorrect verbal advice ("you don't need a permit") got corrected in writing once the Comptroller actually applied the statutory "risk manager" definition to the facts. If you review clients' insurance policies for coverage adequacy or risk-retention decisions for compensation, you likely need a sales tax permit and must collect tax on your fees.

Businesses hiring risk management consultants

Expect a properly registered risk-management consultant's invoice to include Texas sales tax, consistent with how larger insurance consulting firms have historically billed this work.

Accountants and tax professionals

This letter is a good example of the statutory "risk manager" definition (Insurance Code § 21.14-1(1)) driving the sales tax classification under Rule 3.355, rather than the taxpayer's own subjective sense of whether their work "fits" the tax code.

Common questions

Q: Is reviewing a client's insurance coverage and advising on risk retention a taxable service in Texas?
A: Yes, per this letter -- it falls within the statutory definition of "risk manager" services, which are taxable insurance services under Rule 3.355.

Q: Does a risk manager need a sales tax permit?
A: Yes, per this letter -- risk managers are required to apply for a sales tax permit and collect sales tax on their service charges.

Q: What if the Comptroller's own phone staff gave incorrect advice that no permit was needed?
A: This letter shows the written follow-up corrected that advice -- the Comptroller apologized for the inconvenience but confirmed the taxable classification applies regardless of the earlier phone guidance.

Citations and references

Statutes and rules:

• Tex. Ins. Code § 21.14-1(1) (definition of "risk manager")
• 34 Tex. Admin. Code Rule 3.355(a)(2) (definition of insurance inspection)
• 34 Tex. Admin. Code Rule 3.355(b) (taxability of insurance investigations/services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9707554L

Original ruling text

July 2, 1997

Dear ***:

Thank you for your letter of June 24, 1997, concerning your Texas sales and use
tax responsibilities as a risk manager.

You are a new business in Texas and have requested the sales tax information.
For the past 9 years, you worked at an insurance consulting firm in the Dallas
area that charged sales tax on all of its consulting engagements. You are now
doing the same work and thought you needed a sales tax permit; however, when
you called Austin to request the information, you were told that you did not
need one based on your work. After reading the information you received, you
agree but it makes you wonder why your former firm was required to pay the tax.

As an insurance consultant, you are hired by companies to review their
insurance policies to determine whether or not they have the right coverage,
whether or not the policy was issued according to their needs and desires and
whether or not they can change the amount of risk they retain. You do not see
that this is covered under the tax code and therefore, you do not think your
work should be subject to sales tax. Could you please help resolve this
question?

Response: Texas Insurance Code, Section 21.14-1(1) defines a "risk manager" as
a person who holds himself out to the public and who for compensation
examines, assesses, or evaluates risks for and provides advice for reduction
of risks to a person who seeks to obtain or renew property and casualty
insurance coverage in this state.

Rule 3.355(a)(2) defines an "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". Rule
3.355(b) states that insurance investigations and the other insurance services
defined in subsection (a) of Rule 3.355 are taxable when performed for others
pertaining to a policy or policies of insurance.

Based on the foregoing, services provided by risk managers are taxable. Risk
managers are required to apply for a sales tax permit and to collect sales tax
on the charge for their services.

I apologize for any inconveniences we may have caused you.

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