| (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.
Cont'd... |
