Is a risk management consulting firm's fee-based work — exposure analysis, insurance program design/negotiation, policy review, claims reporting/management, due diligence, and statistical reporting — subject to Texas sales tax, even though the firm doesn't sell insurance or earn commissions?

Plain-English summary

A risk management consulting firm asked the Comptroller whether its fee-based services are subject to Texas sales tax. Its services include: identifying and analyzing exposures, designing/negotiating insurance programs, reviewing insurance policies, reporting and managing claims for clients with carriers/third-party administrators, performing due-diligence reviews on acquisition targets, statistical reporting, and presentations to client management on their insurance program. The firm doesn't sell insurance or earn commissions — it's paid strictly in fees — and believed that made it exempt from sales tax.

The Comptroller disagreed. Texas Insurance Code Art. 21.14-1, Sec. 1 defines a "risk manager" as someone who, for compensation, examines/assesses/evaluates risks and advises on reducing risk for a person seeking property/casualty insurance coverage. Rule 3.355(a)(2) defines a taxable insurance inspection service as any activity performed to evaluate risk to property or survey/value property in connection with furnishing insurance coverage — and risk management consultants also perform taxable insurance loss prevention services under Rule 3.355(a)(6). Under Rule 3.355(b), insurance services defined in subsection (a) are taxable when performed for an insurance carrier, its insured, policyholders, or others, for fees, dues, or other consideration tied to a policy of insurance. Based on this, the Comptroller concluded that risk management services ARE taxable, and the firm must apply for a sales tax permit and collect sales tax on its charges.

One important carve-out: Rule 3.355(b) also says these same services performed under a genuine self-insured plan (or for a third-party administrator distributing funds under one, as defined in Rule 3.355(a)(8)) are NOT taxable.

What this means for you

Risk management consultants and firms

Don't assume fee-only compensation (no insurance sales, no commissions) makes your services exempt. If your work fits the insurance inspection or loss prevention definitions in Rule 3.355(a)(2)/(6) and is performed in connection with a policy of insurance, it's taxable, and you need a sales tax permit.

Businesses hiring risk management consultants

Expect sales tax to be added to risk management consulting invoices tied to insurance programs, unless your risk manager's work is performed under a genuine self-insured plan.

Self-insured companies and their third-party administrators

If your risk management/claims services are performed under an actual self-insured plan (not just insurance-adjacent work), those specific services may fall outside this taxable category under Rule 3.355(b)'s self-insured carve-out — check the Rule 3.355(a)(8) definition carefully.

Common questions

Q: Are risk management consulting fees taxable in Texas even without insurance commissions?
A: Yes — this letter found that exposure analysis, insurance program design, policy review, claims management, and similar activities fall within taxable insurance inspection/loss prevention services regardless of how the consultant is compensated.

Q: Does a risk manager need a Texas sales tax permit?
A: Yes, according to this letter — the Comptroller directed the firm to apply for a permit and begin collecting tax on its charges.

Q: Is there any exception?
A: Yes — services performed under a genuine self-insured plan, or for a third-party administrator distributing funds under one, are not taxable under Rule 3.355(b).

Q: Can I rely on this letter for my own risk management firm?
A: No — a Texas letter ruling can be the basis of a detrimental reliance claim only for the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.355(a)(2) (taxable insurance inspection services — evaluating/surveying/valuing property risk in connection with insurance coverage)
• 34 Tex. Admin. Code Rule 3.355(a)(6) (insurance loss prevention services)
• 34 Tex. Admin. Code Rule 3.355(b) (taxability of insurance services performed for fees; self-insured plan exception)
• 34 Tex. Admin. Code Rule 3.355(a)(8) (definition of self-insured plan)
• Tex. Ins. Code Art. 21.14-1, Sec. 1 (statutory definition of "risk manager")

Subject

Risk Management Insurance Services Performed By Risk Manager

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9711948L

Original ruling text

November 17, 1997

Dear *****:

Thank you for your letter of October 30, 1997, asking about your Texas sales
and use tax responsibilities as a risk management consultant.

As a risk management consultant, your firm provides the following services:

Exposure identification and analysis

Insurance program design/negotiation

Review of insurance policies

Report claims to carriers/third party administrators and manage them on behalf
of
your clients

Perform due diligence review on companies your clients are looking to acquire

Statistical reporting

Presentations to management of our clients regarding their insurance program,
reporting requirements, exposures, and claims reporting

You do not sell insurance or receive commissions from insurance companies.
Your compensation is strictly in the form of fees.

Based on the nature of your services, you believe your company is exempt from
the Texas Sales and Use Tax.

Response: Texas Insurance Code Article 21.14-1 Section 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.

Section (a)(2) of Rule 3.355 defines as a taxable insurance service, an
insurance inspection which is "any activity performed to evaluate risk to
property, to survey or
value property in connection with the furnishing of insurance coverage in
connection with the furnishing of insurance coverage or any other similar
activity". (Emphasis added.)
Risk management consultants also perform insurance loss prevention services as
defined in Rule 3.355(a) (6).

Rule 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." A self-insured plan is defined in Rule
3.355(a)(8).

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 am mailing you a sales tax permit
application packet under separate cover.

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.

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

Sincerely,

Eddie C. Washington
Tax Policy Division