| (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.
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| Source Note: The provisions of this §3.355 adopted to be effective March 24, 1988, 13 TexReg 1224; amended to be effective November 13, 1989, 14 TexReg 5787; amended to be effective May 2, 1990, 15 TexReg 2284; amended to be effective March 23, 1995, 20 TexReg 1749; amended to be effective May 1, 2016, 41 TexReg 2970; amended to be effective May 7, 2018, 43 TexReg 2794 |
