34 Tex. Admin. Code § 3.355 - Insurance Services
(a) Definitions.
The following words and terms, when used in this section, shall have the
following meanings, unless the context clearly indicates otherwise.
(1) Affiliated group--A group of one or more
entities in which a controlling interest is owned by a common owner or owners,
either corporate or noncorporate, or by one or more of the member
entities.
(2) Certified public
accountancy firm--A person who holds a firm license issued under Occupations
Code, Chapter 901, Subchapter H (Firm License Requirements), or a firm that
practices public accountancy in this state under Occupations Code, §
901.461 (Practice by
Certain Out-of-State Firms).
(3)
Controlling interest--
(A) for a corporation,
either more than 50%, owned directly or indirectly, of the total combined
voting power of all classes of stock of the corporation, or more than 50%,
owned directly or indirectly, of the beneficial ownership interest in the
voting stock of the corporation;
(B) for a partnership, association, trust, or
other entity other than a limited liability company, more than 50%, owned
directly or indirectly, of the capital, profits, or beneficial interest in the
partnership, association, trust, or other entity; and
(C) for a limited liability company, either
more than 50%, owned directly or indirectly, of the total membership interest
of the limited liability company or more than 50%, owned directly or
indirectly, of the beneficial ownership interest in the membership interest of
the limited liability company.
(4) Insurance loss or damage appraisal--Any
activity performed for purposes of valuing damages, or estimating the quantity,
value, or extent of loss of property. Appraisal activities performed prior to
damage or loss, such as the appraisal of jewelry for scheduling on a homeowners
insurance policy, are not considered loss or damage appraisal.
(5) Insurance inspection--Any activity
performed to evaluate risks to property, to survey or value property in
connection with the furnishing of insurance coverage, or any other similar
activity.
(6) Insurance
investigation--Any activity performed to evaluate an individual's eligibility
or qualifications for insurance coverage, or for the payment of benefits, or
any other similar activity. For example, the assembly or evaluation of
information for the purpose of determining whether to issue a life insurance
policy to a specific individual would be considered an insurance
investigation.
(7) Insurance or
annuity actuarial analysis or research--Any activity performed in connection
with the calculation of rates for a policy of insurance or annuity rates,
reserves, refunds, dividends, insurance benefits, or other similar
activities.
(8) Insurance claims
adjustment or claims processing--Any activities to supervise, handle,
investigate, pay, settle, or adjust claims or losses.
(9) Insurance loss prevention service--Any
activities performed in an effort to identify, analyze, evaluate, control,
anticipate and/or eliminate the occurrence of accidents, losses, or damage.
Examples include: survey recommendations, training programs, consultations,
analysis of accident causes, and industrial hygiene and health
services.
(10) Insurance
carrier--Every type of insurer engaged in the business of insurance that is
licensed or operates under or is required to be licensed or to operate under
the provisions of the Insurance Code.
(11) Public insurance adjuster--A person, as
set out in Insurance Code, §
4102.001(3),
who:
(A) for direct, indirect, or any other
compensation:
(i) acts on behalf of an insured
in negotiating for or effecting the settlement of a claim or claims for loss or
damage under any policy of insurance covering real or personal property;
or
(ii) on behalf of any other
public insurance adjuster, investigates, settles, or adjusts or advises or
assists an insured with a claim or claims for loss of damage under any policy
of insurance covering real or personal property; or
(B) advertises, solicits business, or holds
himself or herself out to the public as an adjuster of claims for loss or
damage under any policy of insurance covering real or personal
property.
(12)
Self-insured plan--A plan whereby an employer maintains funds for providing
employee benefits rather than transferring risk by purchasing insurance from an
insurance carrier. This plan is not considered a policy of insurance for sales
tax purposes.
(13) Third-party
administrator--A person hired by an employer to administer the provisions of
the employer's self-insured plan.
(b) Taxable services. 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.
(c)
Nontaxable services. The following services are not taxable as insurance
services:
(1) insurance coverage for which a
premium is paid or sales commissions are paid to insurance agents. Insurance
services provided by an insurance agent without charge to the customer are not
taxable. If a customer pays a separate amount for these services over and above
the amount paid as a commission for a policy, this separate charge is
taxable;
(2) medical services
provided by any medical provider, including physicians, medical staff at the
physician's direction, hospitals, clinics, chiropractors, and other
practitioners of the healing arts;
(3) services related to automobile warranties
or service contracts for which the State Board of Insurance allows an exclusion
to third-party administrators;
(4)
services performed on behalf of an insured by a public insurance adjuster on or
after October 1, 2015. Insurance services performed by a public insurance
adjuster before October 1, 2015, are subject to tax regardless of the date
billed, invoiced, or paid;
(5)
effective January 1, 2018, services performed by a certified public accountancy
firm, if less than one percent of the firm's total revenue in the prior
calendar year is from services in this state that would otherwise constitute
taxable insurance services, as described in subsection (b) of this section;
and
(6) effective January 1, 2018,
services performed on behalf of a certified public accountancy firm by an owner
of the firm or a member of the firm's affiliated group, if less than one
percent of the owner's or member's total revenue in the prior calendar year is
from services in this state that would otherwise constitute taxable insurance
services, as described in subsection (b) of this section.
(d) Doing business. Insurance services will
be subject to taxation in Texas if the individual, entity, or property which is
the object of the service is in Texas and the company for which the services
are performed is either an insurance carrier as that term is defined in
subsection (a)(10) of this section, or if not an insurance carrier, is doing
business in Texas.
(e) Fees and
premiums. Insurance premiums and any other form of compensation subject to
gross administrative or service fees taxes under the Insurance Code are subject
to tax hereunder if paid in connection with the performance of an insurance
service. Insurance premiums subject to gross premiums taxes under the Insurance
Code are not subject to sales tax.
(f) Not insurance related. Where an insurance
service is performed as a part of a nontaxable service and the primary purpose
for purchasing the nontaxable service is not insurance related, no part of the
fee or charge is taxable. For example, the charge for an appraisal required by
a lender as a condition of extending credit is not taxable as an insurance
service because the primary purpose in obtaining the service is financing the
loan. The fact that the appraisal may also be used as the basis for
establishing minimum property insurance required by the lender as a condition
of financing does not render the service taxable as an insurance
service.
(g) Responsibilities of
persons providing insurance services. Persons providing insurance services must
obtain a tax permit and collect tax on the entire sales price of their
services. The presumption is that all services are taxable unless the service
provider obtains an exemption certificate from a customer claiming an
exemption. For example, a third-party administrator may issue an exemption
certificate for charges for claim adjustment activities done pursuant to a
self-insured plan.
(h) Resale
certificates.
(1) Providers of insurance
service may issue a resale certificate in lieu of tax to suppliers of tangible
personal property only if care, custody, and control of the property will be
transferred to the service provider's client. For example, an insurance service
provider purchases magnetic tape to transfer the results of actuarial research
to service provider's client. The tape is transferred to the client and the
client owns and uses the tape to review the results of the actuarial research.
The insurance service provider may purchase the tape tax free by issuing a
resale certificate. Tax is due on the total amount charged the customer,
including amounts for the tape and for the services.
(2) A resale certificate may be issued for a
service if the buyer intends to transfer the service as an integral part of
taxable services. A service will be considered an integral part of a taxable
service if the service purchased is essential to the performance of the taxable
service and without which the taxable service could not be rendered.
(3) A resale certificate may be issued for a
taxable service if the buyer intends to incorporate the service into tangible
personal property which will be resold. If the entire service is not
incorporated into the tangible personal property, it will be presumed the
service is subject to tax and the service will only be exempt to the extent the
buyer can establish the portion of the service actually incorporated into the
tangible personal property. If the buyer does not intend to incorporate the
entire service into the tangible personal property, no resale certificate may
be issued, but credit may be claimed at the time of sale of the tangible
personal property to the extent the service was actually incorporated into the
tangible personal property.
(i) Unrelated services.
(1) A service will be considered as unrelated
if:
(A) it is not an insurance service, nor a
service taxed under other provisions of Tax Code, Chapter 151;
(B) it is of a type which is commonly
provided on a stand-alone basis; and
(C) the performance of the unrelated service
is distinct and identifiable. Examples of an unrelated service which may be
excluded from the tax base include activities as third-party administrators,
appraisals for reasons other than loss or damage, or doctor's fees.
(2) Where nontaxable unrelated
services and taxable services are sold or purchased for a single charge and the
portion relating to taxable services represents more than 5.0% of the total
charge, the total charge is presumed to be taxable. The presumption may be
overcome by the insurance service provider at the time the transaction occurs
by separately stating to the customer a reasonable charge for the taxable
services. However, if the charge for the taxable portion of the services is not
separately stated at the time of the transaction, the service provider or the
purchaser may later establish for the comptroller, through documentary
evidence, the percentage of the total charge that relates to nontaxable
unrelated services. The insurance service provider's books must support the
apportionment between exempt and nonexempt activities based on the cost of
providing the service or on a comparison to the normal charge for each service
if provided alone. If the charge for exempt services is unreasonable when the
overall transaction is reviewed considering the cost of providing the service
or a comparable charge made in the industry for each service, the comptroller
will adjust the charges and assess additional tax, penalty, and interest on the
taxable services.
(3) Charges for
services or expenses directly related to and incurred while providing the
taxable service are taxable and may not be separated for the purpose of
excluding these charges from the tax base. Examples would be charges for meals,
telephone calls, hotel rooms, or airplane tickets.
(j) Service benefit location--multistate
customer.
(1) To the extent an insurance
service is used to support a separate, identifiable segment of a customer's
business (other than general administration or operation of the business) the
service is presumed to be used at the location where that part of the business
is conducted.
(2) If that part of
the business is conducted at locations both within and outside the state, the
service is not taxable to the extent it is used outside Texas. A multistate
customer may use any reasonable method for allocation which is supported by
business records.
(3) A multistate
customer purchasing insurance services, such as actuarial services, for the
benefit of both in-state and out-of-state locations is responsible for issuing
to the insurance services provider an exemption certificate asserting a
multistate benefit, and for reporting and paying the tax on that portion of the
insurance services charge which will benefit the Texas location. A provider of
insurance services that accepts such a certificate in good faith is relieved of
responsibility for collecting and remitting tax on transactions to which the
certificate relates.
(4) The
customer's books must support the assignment of the service to an identifiable
segment of the business, the determination of the location or locations of the
use of the service, and the allocation of the taxable charge to
Texas.
(5) To the extent the use of
the service cannot be assigned to an identifiable segment of a customer's
business, the service is presumed to be used to support the administration or
operation of the customer's business generally. The service is presumed to be
used at the customer's principal place of business. The principal place of
business means the place from which the trade or business is directed or
managed.
(k) Local tax.
For information on the collection and reporting responsibilities of providers
and purchasers of taxable services, see §
3.334 of this title (relating to
Local Sales and Use Taxes).
(l) Use
tax. If a provider of an insurance service is not doing business in Texas or in
a specific local taxing jurisdiction and is not required to collect Texas state
or local tax, it is the Texas customer's responsibility to report and pay the
use tax directly to this office.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.