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 activiAustin, Texas 78774 . ties of an independent claims investigator or adjustor 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, andUse Tax Act, chapter 151 of the Tax Code, to create several new categories of taxable~ services, including insurance services. Tax Code 8151.0101(a)(9). SeeActs 1987, 70th Leg.I2dC.S., ch. 5,a*. 1,pt. 4, f 12. The legislature defined "insurance service" as follows:

(a). 'Insurance service# means insurance loss ordamage appraisal, insurance inspection, insurance investigation, insurance actuarial analysis or research, insurance claims adjustment orclaims processing, or insurance lossprevention 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 8151.0039, as added byActs 1987, 70th Leg., 2d C.S., ch. 5,art. 1,pt. 4, 8 6. Inyour letter requesting an opinion, you note that a number of businesses claims investigations specialize in providing independent and adjustments for insurance companies, individuals pursuing claims against insurance

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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 orworkmen's compensation policy. You first ask: If these services are retained by an insurance company inconnection with the resolution of an insurance claim, isthis a taxable insurance service under S 151.0039 of the Tax Code? We think that the exclusion of %overage forwhich a premiums ispaid" from the definition of "insurance service" simply means that atransaction that consists of the payment ofapremium for insurance coverage isnot ataxable event. Itdoes notmean that any expenditure forwhich the premium isultimately used by the insurer isnot ataxable 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: Ifquestion 1 is answered \yesr8 if these services are retained by an insurance company after ithasmade an offer of claims settlement andhas been suedby the insured, would this still be ataxable insurance service under 8151.0039 of the Tax Code? We do notbelieve that the timing of the engagement of an insurance service firmmakes any difference. You next ask: If these services are retained by the insured as an aid tohis determination ofwhether he has avalid claim or should accept an insurance company's settlement offer rather than being retained by the insurance companyI would this be a taxable insurance

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service under 5151.0039 of the Tax Code? (Ouremphasis.) The statute provides no basis for distinguishing among purchasers of insurance services. Finally, you ask: Does taxability turn onwhether the services are retained by a private individual, by an attorney, orby an insurance company? Again, the statute provides no ground for the distinctions you suggest. SUMMARX

The exclusion of "insurance coverage for which apremium ispaid" from the definition of "insurance coverage" simply means that a transaction that consists of thepayment of apremium for insurance coverage is not a taxable event. Itdoes notmean that any expenditure for which the permium is ultimately used by the insurer is not a taxable event. Very truly yo ,

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k JIM MATTOX Attorney Genera.1of Texas MARYRELLER First Assistant Attorney General LouMCcREARY 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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