An insurance agent also charges a separate hourly or flat fee to review a client's existing retirement and health plans and propose new plans. Is that consulting fee subject to Texas sales tax as a taxable insurance service?

Plain-English summary

An insurance agent who normally sells insurance policies and retirement plans also charges clients a separate hourly or flat fee for consulting: reviewing their existing retirement and health plans and proposing new ones. The agent asked whether that consulting fee is subject to Texas sales tax.

The Comptroller said no. Rule 3.355(a)(1) through (6) defines specific activities as taxable "insurance services." Reviewing existing plans and proposing new ones didn't fit within that definition — instead, the Comptroller characterized these activities as ordinary "insurance business" under the Texas Insurance Code, which is a different (and non-taxable) category. The letter is brief and doesn't walk through each of Rule 3.355(a)'s six subsections individually; it simply concludes the activities described don't match any of them.

What this means for you

Insurance agents who also consult on existing plans

If you charge a separate fee to review a client's existing retirement or health plans and recommend new ones — as opposed to performing one of the specific taxable insurance services listed in Rule 3.355(a)(1)-(6) — this letter supports treating that consulting fee as not subject to Texas sales tax.

Accountants and tax professionals

Rule 3.355(a) lists specific taxable insurance services; activities that fall outside that enumerated list, even if performed by a licensed insurance agent in a professional consulting capacity, may be treated as ordinary (non-taxable) insurance business under the Texas Insurance Code. Check the specific services performed against Rule 3.355(a)'s six subsections before assuming taxability either way.

Common questions

Q: Is a fee for reviewing and proposing changes to a client's retirement/health plans taxable?
A: Not under this letter — the Comptroller found this doesn't fall within the taxable insurance services defined in Rule 3.355(a)(1)-(6).

Q: Does it matter whether the fee is hourly or a flat rate?
A: No — the letter treats both fee structures the same way; the taxability question turns on what the service actually is, not how it's billed.

Q: Can I rely on this letter for my own insurance consulting business?
A: No — a Texas letter ruling can be the basis of a detrimental reliance claim only for the taxpayer it was issued to. This letter is also very brief and doesn't detail why the specific facts fall outside Rule 3.355(a)'s six subsections, so a differently described service could come out differently.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a)(1)-(6) (defines taxable insurance services; the agent's plan-review/proposal consulting was found not to fall within this definition)

Subject

Insurance Agent — Also Provides Consulting Services By Reviewing Existing Retirement And Health Plans And Making Proposals For New Plans — Not A Taxable Service

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9711864L

Original ruling text

November 18, 1997

Subject: Taxability Issue

Dear **:

Thank you for your e-mail message of November 17, 1997, asking about an
insurance agent's Texas sales tax responsibilities.

The insurance agent, in the normal course of selling insurance policies and
retirement plans, also consults for a fee. The consulting relates to reviewing
existing retirement plans and health plans and making proposals for new plans.
The agent charges either an hourly fee or a flat fee for the services.

Question: Are the charges for the consulting services taxable?

Answer: No. The insurance agent is not performing a taxable insurance service
as that term is defined in Rule 3.355(a)(1) through (6). These activities
appear to be insurance business as that term is defined under the Texas
Insurance Code.

You may download the referenced rule at the following website:
http://www.sos.state.tx.us/tac/34/I/3/0/.

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 if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts. My e-mail address is
.

Sincerely,

Eddie C. Washington
Tax Policy Division