Were insurance-claims investigations performed by a licensed investigative company subject to Florida sales tax?

Subject

Private Investigative Services

Plain-English summary

The company did not have to collect sales tax on insurance investigative services related to claims adjustment for insurance companies, agents, brokers, or insurance service companies. Those services fell within the insurance-investigation classification and outside the private-investigator licensing requirement when performed within the relevant insurance license.

The company did have to tax private investigative services defined by the cited licensing statute when performed for customers outside the insurance-business group. The ruling treated the service actually performed, not the company's voluntary private-investigative license, as decisive.

What this means for you

A licensed investigative company could provide both taxable and nontaxable work. Insurance claims-adjustment investigations were treated differently from general licensable private investigations, and standalone unlicensed services could also differ from services performed in furtherance of taxable work.

Common questions

Q: Did holding a private-investigative license make every service taxable? No.

Q: Which customers received the nontaxable insurance service? Insurance companies, agents, brokers, and insurance service companies.

Q: What work remained taxable? Defined private investigative services requiring Chapter 493 licensure when performed for other customers.

Citations and references

• Fla. Stat. § 212.05(1)(k) — detective and protection services
• Fla. Stat. §§ 493.6101, 493.6102(2), 493.6201 — investigations and licensing
• Fla. Emergency Rule 12AER92-1(2)(c) — investigative services
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-005

Original ruling text

Jan 27, 1993

RE: TAA 93A-005
Sales Tax - Private Investigative Services
Sections 212.05(1)(k); 493.6101(15)(16)(17);
493.6102(2); 493.6201(1), F.S.
Emergency Rule 12AER92-1(2)(c)

Dear :

This is in response to your request for a Technical
Assistance Advisement (TAA) on behalf of your client, XXXX
(hereinafter referred to as [Insurance Investigator]).
[Insurance Investigator] is a wholly owned subsidiary of XXXX
(hereinafter referred to as [Insurance Service]) which is a
wholly owned subsidiary of XXXX (hereinafter referred to as
[Insurance Fund]). Your request is stated, in part, as follows:

FACTS

"The issue for which we are requesting a Technical Assistance
Advisement pertains to application of newly-enacted legislation.
Specifically, we are seeking the Department's interpretation of
Section 16, of Chapter 92-319, Laws of Florida, which, in
relevant part, imposes sales tax on certain detective and
security services defined with reference to the Standard
Industrial Classification Manual of 1987. The Department of
Revenue has promulgated [Emergency Rule 12AER92-1] which
implements this law.

"Although the answer to [Insurance Investigator's] inquiry
appears to be clear from a reading of the tax statute and the
Standard Industrial Classification Manual of 1987, the
Department's emergency rules could be read to produce a
different response. Therefore, the matter is not entirely free
from doubt, and since [Insurance Investigator] could suffer
serious financial consequences if the Department's
interpretation of the law differs from [Insurance

Investigator's] interpretation, the Department should render a
binding opinion on this matter.

"... [Insurance Investigator] was activated approximately two
years ago to provide insurance investigative services to its
parent insurance service corporation, [Insurance Service]. The
[Insurance Fund] is charged monthly for the services of
[Insurance Investigator]. While [Insurance Investigator] also
performs some insurance investigative services for other insured
clients of [Insurance Service], all of its investigative
services are related to insurance claims adjustment. [Insurance
Investigator] does not hold itself out to the general public as
a private investigative agency, nor does it perform the broad
range of functions typically associated with a private
investigative agency.
"Nonetheless, in an abundance of caution, [Insurance
Investigator] has secured a license as a private investigative
agency pursuant to Chapter 493, Florida Statutes. [Insurance
Investigator] (and most Special Investigative Units for
insurance companies) are arguably exempt from such licensure
pursuant to s. 493.6102, F.S. However, [Insurance Investigator]
chose to pursue the most conservative interpretation of the
Florida licensure statutes and therefore secured a license.
Notwithstanding such license, [Insurance Investigator] has
consistently performed only insurance investigative services.
Furthermore, [Insurance Investigator] has never held itself out
to the general public as a business entity available to perform
the wide range of traditional private investigative services.

"Section 16 of Chapter 92-319, Laws of Florida... imposes the
sales tax on Detective, burglar protection, and other protection services (SIC Industry Numbers 7381 and 7382).' Such section further provides thatAs used in this paragraph, "SIC"
means those classifications contained in the Standard Industrial
Classification Manual, 1987, as published by the Office of
Management and Budget, Executive Office of the President.'
Therefore, it is apparent that the Legislature intended to
utilize the SIC classifications as the basis for defining those
services subject to taxation.

"[Insurance Investigator] believes that the services it performs

are described precisely by the SIC Manual in Industry Number
6411, Insurance inspection and investigation services'... and, as such, were not subjected to taxation by the Legislature. As such, [Insurance Investigator] services do not fall within the grouping ofDetective, Guard and Armored Car Services'
described in Industry Number 7381... which services were
subjected to sales tax pursuant to s. 16 of Chapter 92-319, Laws
of Florida.

"The confusion which produced this request for a Technical
Assistance Advisement results from the Department's emergency
rules, which, in relevant part, describe as taxable those `...
services which require licensure under Chapter 493...'
[Emergency] Rule 12AER92-1(2)(c).... Because it is arguable that
[Insurance Investigator] is not required to be licensed under
Chapter 493 [F.S.], it is possible for the Department to concur
with [Insurance Investigator's] position as to the nontaxability
of its services without invalidating its emergency rules. The
Department could simply dismiss as irrelevant the fact the
[Insurance Investigator] is licensed as a private investigative
company and concur that [Insurance Investigator's] services are
insurance investigative services, as described in Industry
Number 6411, which the Department's rule cannot be read to reach
since the underlying tax statute does not.

"However, I do not believe the Department can rely upon its rule
as the basis for imposing tax on [Insurance Investigator's]
services as such emergency rule utilizes a definition for
taxable services that is different than that utilized by the
Legislature. Clearly, had the Legislature wished to tax all
services for which a license is required by Chapter 493, Florida
Statutes, it could have done so as easily as utilizing the SIC
Manual classifications. However, the Legislature specifically
opted to utilize the SIC Manual classifications. As laws
imposing tax must be strictly construed in favor of the
taxpayer, it is [Insurance Investigator's] position that the
Department cannot by rule expand the statute to impose tax on a
service not taxed by the underlying statute.

"Finally, if [Insurance Investigator], at some future date, were
to undertake to perform for the public general investigative

services that are not insurance investigative services as
described in Industry Number 6411, it would concede the
taxability of such services under the current statutory scheme.
We wish to make clear that [Insurance Investigator] is not
arguing the nontaxability of its services based upon who it is,
but instead [is] arguing nontaxability based upon the nature of
the services it performs."

STATUTORY/REGULATORY AUTHORITY

Section 212.05(1), F.S., as amended by Section 16 of
Chapter 92-319, L.O.F., provides in part:

"Sales, storage, use tax. - It is hereby declared to be the
legislative intent that every person is exercising a
taxable privilege who... furnishes any of the things or
services taxable under this chapter...
"(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:
"(k) At the rate of 6 percent on charges for all:
"1. Detective, burglar protection, and other protection
services (SIC Industry Numbers 7381 and 7382)...."

Section 493.6101, F.S., provides the following definitions:

"(15) Private investigative agency' means any person who, for consideration, advertises as providing or is engaged in the business of furnishing private investigations. "(17)Private investigation' means... the investigation by
a person or persons for the purpose of obtaining
information with reference to any of the following matters:
"(a) Crimes or wrongs... against the United States or any
state or territory of the United States...
"(b) The identity, habits, conduct, movements, whereabouts,
affiliations, associations, transactions, reputation, or
character of any society, person, or group of persons.
"(c) The credibility of witnesses or other persons.
"(d) The whereabouts of missing persons, owners of
abandoned property or escheated property, or heirs to
estates.

"(e) The location or recovery of lost or stolen property.
"(f) The causes and origin of, or responsibility for,
fires, libels, slanders, losses, accidents, damage, or
injuries to real or personal property.
"(g) The business of securing evidence to be used before
investigating committees or boards of award or arbitration
or in the trial of civil or criminal cases and the
preparation therefor."

Section 493.6102, F.S., provides in part:

"Inapplicability of parts I through IV of this chapter. This chapter shall not apply to:
"(2) Any insurance investigator or adjuster licensed by a
state or federal licensing authority when such person is
providing services or expert advice within the scope of his
license."

Section 493.6201, F.S., provides in part:

"(1) Any person, firm, company, partnership, or corporation
which engages in business as a private investigative agency
shall have a... license...."

Emergency Rule 12AER92-1(2)(c) provides in part:

"(c) For the purpose of this emergency rule, detective
agency services and private investigator services which
require licensure under Chapter 493, F.S., are taxable.
Services for which licensure is not required are also
taxable when their performance is in furtherance of the
performance of a taxable service. Services for which
licensure is not required are not taxable when their
performance is not in furtherance of the performance of a
taxable service.
"1. Example: A private investigator performs data base
retrieval or courthouse records retrieval, neither of which
is an activity requiring a private investigator license
under Chapter 493, F.S. If these services are free
standing, and have no relevance to the performance of a
taxable service, they are not taxable.

"2. Service of process is not a taxable service, whether or
not performed by detective agencies or private
investigators, unless performance of such a service is
incidental or integral to the performance of a taxable
service...."

DETERMINATION

Emergency Rule 12AER92-1(2)(c), promulgated to clarify
legislative intent, provides that private investigative services
that require licensure under Chapter 493, F.S., are subject to
sales tax. Through examples provided in the emergency rule, it
is the position of the Department that sales tax on those
services provided by industries listed under Standard Industry
Code classification 7381 are taxable, which includes detective
agency services and private investigator services, and the tax
is to be collected by detective agencies, private investigative
agencies, and private investigators who are required to be
licensed under Chapter 493, F.S. Furthermore, by example, the
rule provides that those services which do not require licensure
under Chapter 493, F.S., and which are not required in
furtherance of a taxable service are not subject to sales tax,
even though performed by a licensed private investigator,
private investigative agency, or detective agency.

Section 493.6102(2), F.S., provides that licensure
requirements under Chapter 493, F.S., do not apply to any
insurance investigators providing services within the scope of
their licenses issued by a state or federal licensing authority.
Furthermore, insurance investigative services are classified in
the Standard Industrial Classification Manual, 1987, under
industry number 6411. Establishments described under industry
number 6411 include "independent organizations concerned with
insurance services."

Based on these observations and facts, it is the position
of the Department that [Insurance Investigator] is not required
to collect sales tax on insurance investigative services related
to insurance claims adjustment which are performed for insurance
companies, agents, brokers, or insurance service companies.
However, [Insurance Investigator] is required to collect sales

tax on those private investigative services defined under s.
493.6101(17), F.S., which require licensure, in the event that
such services are performed for anyone other than insurance
companies, agents, brokers, or insurance services companies.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Sharon Gallops
Technical Assistant

SG/pb
Cont. #5503