When are missing-person investigative services subject to Florida sales tax, and is a separate monthly administration fee taxable?

Plain-English summary

Florida sales tax followed where the customer primarily benefited from the investigative service, not simply where the investigator worked. Services sold to a non-Florida resident were not taxable when they did not concern Florida property, Florida activities, or a Florida decedent's estate. Services used by a Florida customer were taxable even if the investigation occurred outside Florida.

For a Florida customer, the taxable amount included the field investigator's hourly charges and expenses plus the intermediary's markup. The registered businesses could use resale certificates as the investigative service moved through the chain before the final sale to the customer.

The intermediary's separate monthly administration fee was not taxable. It paid for access to investigators and status-report administration regardless of whether any investigation was underway, so the Department found that it was not connected with furthering a specific taxable investigation.

What this means for you

Businesses selling detective or private-investigator services should identify where the purchaser receives the service's primary benefit and keep the documentation required for services treated as used outside Florida. They should also separately state genuinely independent administrative services; combining taxable and nontaxable services without support can cause the full charge to be presumed taxable under the authority quoted in the ruling.

Common questions

Q: Are investigative services performed in Florida always taxable? A: No. In this ruling, services used outside Florida by a non-Florida purchaser were not taxable even though the governing law also addressed services performed in Florida.

Q: Can Florida tax an investigation performed in another state? A: Yes. The Department said services used by a Florida purchaser were taxable regardless of where the investigation was performed.

Q: What part of the charge was taxable for a Florida customer? A: The total investigative charge, including the field investigator's hourly fee and expenses and the intermediary's markup.

Q: Why was the monthly administration fee not taxable? A: It was payable even when no investigation was active and had no relationship to furthering a specific investigation.

Citations and references

• Fla. Stat. § 212.05(1)(k) — detective, burglar-protection, and other protection services
• Fla. Admin. Code r. 12A-1.0092 — detective and private-investigator services
• Fla. Admin. Code r. 12A-1.0161 — primary-benefit sourcing and resale certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-005

Original ruling text

Jan 16, 1996

Re: TAA 96A-005
Sales Tax; Investigative Services
s. 212.05(1)(k), F.S.
Rules 12A-1.0092; 12A-1.0161, F.A.C.

Dear :

This is in response to your request for a technical assistance advisement on behalf of your client, XXXX (hereinafter "Taxpayer"). You request an official binding statement in conformity with the opinion expressed in a Letter of Technical Advice, dated May 12, 1995, which was issued in response to your initial inquiry.

FACTS PRESENTED

"Taxpayer' ... proposes to provide services to locate persons who currently or in the future are, or may be, reported missing due to kidnappings, abductions or other unforeseen circumstances. Once identified, the location of the missing person is reported byTaxpayer' to the relevant state or federal law enforcement authorities for recovery of the individual(s).

"Taxpayer' will engage the services of Company B (B'), to contract the services of private investigators within the various states including Florida. B' is an unrelated XXXX corporation that conducts business in Florida, and who likeTaxpayer,' is a registered Florida sales and use tax dealer. The investigators contracted by B' function entirely in their capacity as independent contractors in pursuing the investigatory activities necessary to locate the missing persons.B' will monitor the progress of the investigations and report their status to Taxpayer' but will not conduct the actual investigation. The hourly fees plus expenses which the investigators bill toB', will be

separately passed through to Taxpayer' includingB's' markup. B' will separately chargeTaxpayer' monthly administrative expenses for accessing the services of the private investigators upon demand in the various states.
B' will also compile and remit toTaxpayer' information relating to the status of on going investigations as these are received and reported to B' from the independent field investigators.Taxpayer' has been currently paying `B' monthly administration fees even though no engagements have been contracted to date, nor investigations commenced.

"As an example of the type of services to be rendered, a typical case may involve the disappearance of the son or daughter of a resident in XXX who has contracted the services of Taxpayer'.Taxpayer' notifies B' of the case involving the disappearance of the relative in XXX.B' through newspaper advertisements and other available means will solicit the services of a private investigator in XXX. Once an investigator is found and approved by B', his (her) services will be contracted to conduct the field investigation in XXX. The investigator, hereinafter referred to asC', will report any leads which are uncovered in the course of the investigation to a functioning administrator on duty at B'. Multiple leads may be reported at various times to various individuals, who depending at the time of the contact, may be on duty to receive such information atB'. B' compiles the reported information and remits [it] toTaxpayer'. B' neither supervises nor maintains under its direction or control the investigative services rendered byC'.

"C' chargesB' for services rendered at an hourly fee plus expenses. B' in turn invoicesTaxpayer' for these charges at a marked up hourly rate, plus expenses. These are separate from and in addition to the monthly administration fee paid to Taxpayer' for accessing the placement of investigatory services on demand, and remitting the compiled information toTaxpayer'.

"Once the location of the missing person has been identified and reported to Taxpayer',Taxpayer' alerts

the local state and/or federal authorities for recovery of the individual.

"In connection with the foregoing, we seek technical advice with respect to the following questions.

"1. Will Florida sales tax apply to the fees for investigatory services rendered by C' within or outside Florida in connection with cases arising from out-of-state (non Florida) customers ofTaxpayer'?

"2. Will sales tax apply to the fees for investigatory services rendered by C' either within or outside Florida in connection with cases arising from Florida resident customers ofTaxpayer'?

"3. Does Florida sales tax apply on the separate monthly administration fees paid by Taxpayer' toB'?"

STATUTORY/REGULATORY AUTHORITY

Section 212.05(1), F.S., provides in part:

"(1)... [A] tax is levied on each taxable transaction or incident, which tax is due and payable as follows: ... "(k)1. At the rate of 6 percent on charges for all: "1 Detective, burglar protection, and other protection services (SIC Industry Numbers 7381 and 7382).... "3. Charges for detective, burglar protection, and other protection security services performed in this state but used outside this state are exempt from taxation. Charges for detective, burglar protection, and other protection security services performed outside this state and used in this state are subject to tax. "4. If a transaction involves both the sale or use of a service taxable under this paragraph and the sale or use of a service or any other item not taxable under this part, the consideration paid must be separately identified and stated with respect to the taxable and exempt portions of the transaction or the entire transaction shall be presumed taxable. The burden shall be on the seller of the service

or the purchaser of the service, whichever applicable, to overcome this presumption by providing documentary evidence as to which portion of the transaction is exempt from tax. The department is authorized to adjust the amount of consideration identified as the taxable and exempt portions of the transaction; however, a determination that the taxable and exempt portions are inaccurately stated and that the adjustment is applicable must be supported by substantial competent evidence. "5. Each seller of services subject to sales tax pursuant to this paragraph shall maintain a monthly log showing each transaction for which sales tax was not collected because the services meet the requirements of subparagraph 3. for out-of-state use. The log must identify the purchaser's name, location and mailing address, and federal employer identification number, if a business, or the social security number, if an individual, the service sold, the price of the service, the date of sale, the reason for the exemption, and the sales invoice number. The monthly log shall be maintained pursuant to the same requirements and subject to the same penalties imposed for the keeping of similar records pursuant to this chapter...."

Rule 12A-1.0092, F.A.C., provides in part:

"(2)(e) On and after July 1, 1994, the services in this rule are taxable when performed within or outside this state and used within this state by the purchaser or when the purchaser's primary benefit of the services is within this state. The services in this rule are exempt when performed within this state but used outside this state by the purchaser or when the purchaser's primary benefit of the services is outside this state. The seller must maintain a log pursuant to Rule 12A-1.0161(2)(d), F.A.C., documenting any transaction where services are performed in this state but used by a purchaser outside this state.... "(3)(a) For the purpose of this rule, detective agency services and private investigator services which require licensure under Chapter 493, F.S., are taxable. Services which do not require licensure are taxable when performed in furtherance of a taxable service. Services which do not

require licensure are not taxable when free standing and not performed in furtherance of a taxable service. The charge for such services must be separately stated on the invoice given to the purchaser in order to be considered exempt from tax...."

Rule 12A-1.0161, F.A.C., provides in part:

"(2)(b) ... The primary benefit of the service is presumed to be used or consumed in Florida... when: "1. The real property is located in Florida, if the service is applied to or otherwise directly relates to the real property; or "2. The situs or permanent location of tangible personal property is in Florida, if the service is applied to or otherwise directly relates to the tangible personal property; or "3. The direct result of the service applies to activities of the purchaser in Florida, if the service is unrelated to real property or tangible personal property; or "4. The service is performed for or primarily benefits the estate of a decedent whose last established residency was in Florida.... "(5)(a)5. When a sale of a service is made to a person who claims to be entitled to purchase services for resale, the seller of the service being a duly registered dealer pursuant to Part I of Chapter 212, F.S., shall obtain from the purchaser of the service a resale certificate..."

ADVISEMENT

In response to Question One, investigative services that are performed inside or outside Florida are not taxable where the purchaser's primary benefit of the service is outside Florida. In the example presented of the type of services rendered by Taxpayer, the purchaser was a non-Florida resident who purchased investigative services from Taxpayer. The services were performed in XXX by investigators contracted by "B." The investigative services did not relate to real or personal property located in Florida belonging to the nonFlorida resident, the services did not apply to Florida

activities of the non-Florida resident, nor were the services related to the estate of a Florida decedent. In this example, the investigative services billed to the non-Florida resident by Taxpayer would not be subject to sales tax in that the investigative services were not used in Florida.

In response to Question Two, investigative services are subject to tax where the services are used by the purchaser in Florida, regardless that the services may be performed outside Florida. The total charge Taxpayer makes to its Florida customer, including "C's" hourly rate and expenses billed to Taxpayer by "B" plus "B's" markup, is taxable. If "C" were a registered Florida dealer, "B" would extend a resale certificate to "C." Taxpayer would extend a resale certificate to "B" since both Taxpayer and "B" are registered for Florida sales tax purposes.

In response to Question Three, Taxpayer engages the services of "B" to contract the services of third party private investigators within the various states including Florida to conduct investigative services on behalf of Taxpayer. "B's" services also include monitoring and providing status reports on ongoing investigations performed by the third party investigators. B" resells the third party services to Taxpayer for resale to Taxpayer's customer. "B" charges Taxpayer a monthly administrative fee for providing these services which is a separate and unrelated charge "B" makes to Taxpayer for third party services resold to Taxpayer. Taxpayer's purchase of "B's" administrative services are not subject to sales tax in that these services have no relation to the furtherance of any specific investigation and the fees for the administrative services are payable, regardless of any ongoing investigations.

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
Senior Tax Specialist

/sg
Cont. #21612