               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




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