THE ATTORNEY GENERAL
OF TEXAS
February 13, 1989
Honorable Bob Bullock Opinion No. JM-1016
Comptroller of Public Accounts
L.B.J. State Office Building Re: Whether certain activi-
Austin, Texas 78774 . ties of an independent
claims investigator or ad-
justor constitute a taxable
.' insurance service under
section 151.0039 of the
Insurance Code, and related
questions (RQ-1564)
Dear Mr. Bullock:
The second called session of the 70th Legislature
amended the Texas Limited Sales, Excise, and Use Tax Act,
chapter 151 of the Tax Code, to create several new
categories of taxable~ services, including insurance
services. Tax Code 8 151.0101(a)(9). See Acts 1987, 70th
Leg. I 2d C.S., ch. 5, a*. 1, pt. 4, f 12.
The legislature defined "insurance service" as follows:
(a). 'Insurance service# means insurance
loss or damage appraisal, insurance inspec-
tion, insurance investigation, insurance
actuarial analysis or research, insurance
claims adjustment or claims processing, or
insurance loss prevention service.
(b) 81nsurance service' does not include
nsurance coveraae for which a vremium is
d or commissions paid to insurance agents
for the sale of insurance or annuities.
(Emphasis added.)
Tax Code 8 151.0039, as added by Acts 1987, 70th Leg., 2d
C.S., ch. 5, art. 1, pt. 4, 8 6.
In your letter requesting an opinion, you note that a
number of businesses specialize in providing independent
claims investigations and adjustments for insurance
companies, individuals pursuing claims against insurance
p. 5241
companies, and attorneys representing insurance companies or
claimants. You also note that such firms investigate
whether an accident covered by insurance or workmen's
compensation occurred and the cause and extent of the
damages covered by an insurance or workmen's compensation
policy.
You first ask:
If these services are retained by an insu-
rance company in connection with the resolu-
tion of an insurance claim, is this a taxable
insurance service under S 151.0039 of the Tax
Code?
We think that the exclusion of %overage for which a pre-
miums is paid" from the definition of "insurance service"
simply means that a transaction that consists of the payment
of a premium for insurance coverage is not a taxable event.
It does not mean that any expenditure for which the premium
is ultimately used by the insurer is not a taxable event.
Further, the definition of "insurance service"
expressly includes the items you ask about. Thus, the
suggested reading of the plain language of the Tax Code
would render the provision making insurance services a
taxable item meaningless. The legislature cannot have
intended such an absurd result. See. e.a., Citv of Houston
y. Allred, 71 S.W.2d 251 (Tex. 1934).
You next ask:
If question 1 is answered \yesr8 if these
services are retained by an insurance company
after it has made an offer of claims settle-
ment and has been sued by the insured, would
this still be a taxable insurance service
under 8 151.0039 of the Tax Code?
We do not believe that the timing of the engagement of an
insurance service firm makes any difference.
You next ask:
If these services are retained by the insured
as an aid to his determination of whether he
has a valid claim or should accept an insu-
rance company's settlement offer rather
than being retained by the insurance com-
pany I would this be a taxable insurance
p. 5248
Honorable Bob Bullock - Page 3 (JM-1016)
service under 5 151.0039 of the Tax Code?
(Our emphasis.)
The statute provides no basis for distinguishing among
purchasers of insurance services.
Finally, you ask:
Does taxability turn on whether the services
are retained by a private individual, by an
attorney, or by an insurance company?
Again, the statute provides no ground for the distinctions
you suggest.
SUMMARX
The exclusion of "insurance coverage for
which a premium is paid" from the definition
of "insurance coverage" simply means that a
transaction that consists of the payment of
a premium for insurance coverage is not a
taxable event. It does not mean that any
expenditure for which the permium is
ultimately used by the insurer is not a
taxable event.
Very truly yo ,
k
J hJ&
JIM MATTOX
Attorney Genera.1 of Texas
MARYRELLER
First Assistant Attorney General
Lou MCcREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STBARLBY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by D. R. Bustion, II
Assistant Attorney General
p. 5249