USAA Ordered to Pay Sales and Use Taxes

Texas District Court Judge Margaret Cooper has ruled that USAA Insurance Co. of San Antonio is liable for sales, motor vehicle and fuel taxes, and Texas Comptroller Carole Keeton Rylander believes the ruling could save the state $2 billion.

USAA filed a refund claim with the comptroller’s office in January 2000 to recover $120 million in taxes and interest paid to the state since 1994, arguing that state law required insurers to pay taxes only on premiums they charge—gross premium taxes—and that they are exempt from any other taxes. Most businesses must pay taxes on net revenue.

The state comptroller’s office held that when the state sales tax was enacted in 1961, the law did not exempt insurance companies or other for-profit companies. Had USAA won the case, the comptroller’s office argued, a precedent could be set for other companies, potentially making the state liable for $2 billion. Rylander has vowed to continue to fight a court battle should one be brought by USAA.

USAA vice president Cyndi Taylor Krier stated she was perplexed that USAA, which provides coverage to families of U.S. military personnel, should have to pay more taxes than required by Texas law, and that the company would study its options in the wake of the ruling. In a prepared statement, Krier noted, “We believe that we are right on the law and we are studying the options we have as the result of today’s ruling.”

Rylander requested a change in the tax law during the 2001 legislative session. “I went to the leadership of the Legislature, and we did not change the law—what the Legislature did was simply to clarify what the law had always been,” Rylander said. The Legislature clarified that insurers are liable for both premium and sales and use taxes.

“I have felt all along—in my gut I have really felt that we were absolutely right on the law,” Rylander explained. “Don’t misunderstand me, USAA is a great employer in the state of Texas, but they are simply wrong on the law on this, and USAA needs to be paying all the taxes that all the other businesses are paying.

“They’re relying on a 1904 law, which meant that they’d pay no other occupation tax,” Rylander continued. “In 1961, when the sales tax was passed, USAA paid sales taxes for 40 years without saying a word. When the tax law passed … it specifically exempted those (companies) that were not to pay the sales tax, and they exempted non-profit groups. They did not exempt any for-profit groups—they did not exempt insurance companies.”

Asserting that the premium tax it pays is in lieu of sales and use taxes, USAA maintained that it has overpaid its taxes and deserves a refund. “USAA is owned by millions of members of America’s fighting forces,” Krier stated. “We cannot understand why anyone would insist that those who defend our freedom pay more taxes to the state of Texas than the law requires.

“If we decide to appeal and prevail, any refund we ultimately receive in this case will be used to help hold the line on the cost of insurance and other financial services for the military families who depend on us.”

Beyond Krier’s statements, USAA declined further comment on the ruling.

Topics Texas