Were investigations of insurance claims and losses subject to Florida sales tax as taxable private-investigator services?

Subject

Insurance Investigative Services

Plain-English summary

The Department concluded that the company's insurance-claim investigative services were not subject to Florida sales tax. Although the same work could look like private investigation, the taxing statute applied only to specified Standard Industrial Classification codes.

Private detective and investigation work for non-insurance clients fell under taxable SIC 7381. But insurance inspection, investigation, claim-adjustment, research, and loss-prevention services for insurance carriers fell under SIC 6411, a category the statute did not enumerate as taxable.

The Department applied that distinction to the company's work: investigating claim facts, retrieving unelaborated public records, examining loss scenes for insurers, reporting on causes and extent of loss, and conducting code-compliance or fire-prevention examinations were nontaxable on the stated insurance facts.

The result did not exempt insurance companies generally. It classified the service by its purchaser and insurance purpose. Calling an uninsured private person self-insured would not move a private investigation into the insurance-services category.

What this means for you

Under the statute applied in this 1997 ruling, two identical investigations could have opposite tax results. Finding stolen property for a private owner was taxable detective work; doing the same for the owner's insurance company as part of claim adjustment was nontaxable insurance service.

Service providers therefore needed records identifying the client and the purpose of each engagement, not just a generic description of the investigative task.

Common questions

Q: Were all investigations performed by this company exempt? No. Work for non-insurance clients could remain taxable under SIC 7381.

Q: Were public-record searches taxable? The ruling treated reports of public or database information as nontaxable when the investigator did not elaborate on, verify, or confirm the information.

Q: Did insurance companies receive a blanket exemption? No. The Department said the result came from classifying the service under SIC 6411, not from exempting the customer.

Q: Was informal advice from Department staff binding? No. The ruling said oral opinions and informal technical advice were not binding; the TAA stated the Department's formal position for the specific facts.

Citations and references

• Fla. Stat. § 212.05(1)(k)1.a. — tax on detective and protection services in SIC 7381 and 7382
• Fla. Admin. Code R. 12A-1.0092 — investigative-services guidance
• Department of Revenue v. Brookwood Associates, 324 So. 2d 184 (Fla. 1st DCA 1975); Overstreet v. Ty-Tan, Inc., 48 So. 2d 158 (Fla. 1950) — cases cited for strict construction of taxing statutes
• Fla. Admin. Code ch. 12-11; Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-016

Original ruling text

SUMMARY

The statute which imposes a sales tax on investigative
services specifically states that the tax is imposed on
those activities falling under SIC code 7381 and 7382. A
variety of identical investigative services which may be
performed for private individuals may also be performed for
an insurance company. If an investigative service is
performed for an insurance company, it will be considered
to be an activity falling under SIC code 6411 and will not
be subject to tax. Investigative services performed for
non-insurance company clients will be considered an
activity under SIC code 7381 and will be subject to tax.

Mar 25, 1997

Re: Technical Assistance Advisement 97A-016
Sales and Use Tax; Insurance Investigative Services
Section 212.05(1)(k)1.a., F.S.
Rule 12A-1.0092, F.A.C.

Dear :

This is in response to your letter of January 6, 1997,
requesting a Technical Assistance Advisement (TAA) in
clarification of the taxable status of certain investigative
services performed by your company (hereinafter "Investigator")
for insurance companies. Your letter provides in significant
part:

... Since the passage of the [tax on investigative
services], we have charged the insurance companies which we
are retained by, the State sales tax and paid it to the
State. Of late, clients have questioned the charge for
sales tax and on occasion, refused to pay the tax. The
clients have indicated that other companies that provide
services which we provide do not charge the tax. They
further state that inquiries to the Department of Revenue

have provided a response from the Department that the tax
does not apply to our services. This was confirmed to the
insurance companies by attorneys and accounting firms.
Attached are copies of these interpretations referred to.

[Investigator] is a company involved in investigation of
the facts of insurance claims in the course of claims
adjustment. In some instances, we only retrieve public
records, in person and electronically. We examine the
scene of insurance claims relative to the loss on behalf of
the insurance companies adjusting claims. Our service
involves property loss such as storm damage, water damage,
fire loss, motor vehicle[,] and industrial loss. Our
service provides information relative to the cause and
extent of the loss. Some examinations are conducted
relative to code compliance or fire prevention....

Based on the information available to me and the knowledge
of my business, it is my opinion that my activities are not
subject to tax.

APPLICABLE STATUTE

Section 212.05, F.S., provides in part:

(1) For the exercise of such privilege, a tax is levied
on...

(k)1.a. Detective, burglar protection, and other protection
services (SIC Industry Numbers 7381 and 7382).

DETERMINATION

Your letter states that your insurance company clients have
made inquiries to the Department of Revenue concerning the tax
status of the services that you provide and the response has
been that the services are not subject to tax. It must be
emphasized that oral opinions and advice, as well as informal
written technical advice, issued by representatives of the
Department are not binding on the Department. Further, advice
or off-hand opinions from "attorneys and accounting firms," as

mentioned in your letter, are not binding on the Department.
This response is a technical assistance advisement issued
pursuant to the provisions of Chapter 12-11 of the Florida
Administrative Code. As such, it is the Department's formal
position on the tax consequences of specific transactions or
events under applicable statutes and rules.

Section 212.05(1)(k)1.a., F.S., which imposes the tax on
detective, burglar protection, and other protection services,
expressly states that the tax will apply to SIC (Standard
Industrial Classification) industry numbers 7381 and 7382. SIC
industry number 7382 applies to security system service
companies such as burglar and fire alarm companies. The issues
affecting Investigator are not burglar or fire alarm services.
Accordingly, SIC industry number 7382 does not apply to the
issues herein under consideration and will not be addressed.

SIC industry number 7381 applies to detective, guard, and
armored car services. Within that classification, the Standard
Industrial Classification Manual ("manual") specifically
includes detective agencies and private investigators. The
initial impression is that Investigator's services fall within
this area and will be taxable. However, two other SIC industry
numbers must be considered as well.

SIC industry number 6411 applies to insurance agents,
brokers, and service. Although this classification primarily
concerns insurance agents, the manual states that "[t]his
industry also includes independent organizations concerned with
insurance services." The classification goes on to list
insurance claim adjusters, insurance information bureaus, and
insurance inspection and investigation services. A significant
portion of Investigator's services is insurance related.

Another significant SIC industry number is 7323, which
applies to credit reporting services. The classification lists
consumer credit reporting bureaus, credit bureaus and agencies,
credit clearinghouses, credit investigation services, and
mercantile credit reporting bureaus. It has not been determined
that any of Investigator's services are related to credit
reporting. Accordingly, except in summarization, credit

reporting issues will not be addressed.

Again, the statutory section which imposes the tax on
investigative services, imposes the tax based on SIC industry
numbers. Although the SIC industry numbers are clear and
unambiguous, the activities described within those codes are
subject to interpretation. Accordingly, the court's findings in
the matter of Department of Revenue v. Brookwood Associates, 324
So.2d 184 (Fla. 1st DCA 1975), cert. denied 366 So.2d 600 (Fla.
1976), are pertinent. In that case, the court stated:

Taxing statutes... are to be strictly construed. When such
statutes are... unclear then it is the duty of the taxing
authority,... to construe such statutes or ambiguities
liberally in favor of the taxpayer or citizen and strictly
against the taxing authority. If a taxing statute... is
susceptible of two meanings, the meaning most favorable to
the taxpayer should be adopted. This is particularly true
in instances wherein one meaning results in imposing the
tax and the other relieves imposition of the tax.

It is also important to note the similar findings by the
Florida Supreme Court in the matter of Overstreet v. Ty-Tan,
Inc., 48 So.2d 158 (Fla. 1950). There, Justice Terrell states:

A cardinal rule for construing taxing statutes requires
that they impose the tax in clear and specific terms,
otherwise they will be held not to impose it.

In consideration of these court cases and the language of
the taxing statute, it is possible to have opposite tax
consequences for two seemingly identical investigative efforts.
Consider the following scenario.

Two individuals, A and B, own boats. A's boat and B's boat
are both stolen. A is not insured and hires Investigator to
find his boat. B is insured and reports the theft to his
insurance company. B's insurance company hires Investigator to
find B's boat. The service that Investigator performs for A is
a private investigation falling under SIC Code 7381 and is
taxable. The service that Investigator performs to find B's

boat is an investigation as well; however, Investigator's
service is being rendered to B's insurance company.
Accordingly, Investigator's service performed for B's insurance
company is for insurance purposes under SIC Code 6411 and is not
subject to tax.

This should not be construed to mean that insurance
companies are exempt from tax. The above scenario merely
recognizes that investigations performed for insurance purposes
fall within an SIC Code which has not been enumerated as subject
to tax under the taxing statute. It must be emphasized as well
that SIC Code 6411 concerns itself with "insurance carriers."
In the above scenario, it would be incorrect to label A as
"self-insured" and construe the services performed for A as
falling under SIC Code 6411.

The Department is in the process of preparing amendments to
Rule 12A-1.0092, F.A.C., which provides administrative guidance
for the tax on investigative services. As a part of that
process, the Department held a rule development workshop on
January 22, 1997. With the input of investigative industry
representatives who attended the workshop, the Department has
been able to clarify the issue of the taxability of
investigative services when performed for insurance purposes.
Based on that workshop and other review activities, it is the
Department's position that the following investigative
activities and reporting services are not subject to tax when
free standing and not performed in furtherance of a taxable
service:

1. All credit reports on individuals or businesses.
2. Any report on individuals for employment purposes.
3. Reports for the purpose of evaluating an individual's
   or business' eligibility for insurance, bonding, or
   licensure.
4. Any investigation conducted, or report issued, on an
   individual pursuant to written permission of that
   individual.
5. Any report of public information or computer database
   information where the information is not elaborated
   upon, verified, or confirmed by the investigator.

6. Any report on an individual issued pursuant to a
specific order of the court. This does not include
reports ordered by independent attorneys with matters
before the court.

7. Any investigation conducted on behalf of an insurance
   company or insurance adjuster for the purpose of
   adjusting or settling an insurance claim.
8. Insurance inspection, reporting, research, or loss
   prevention services for insurance carriers, not
   otherwise associated with an insurance claim.
9. Repossession services (Note: Although this activity
   may involve the "location" of missing property, this
   activity is properly included within SIC industry
   number 7389).

The following investigations or reporting services are
subject to tax:

1. Any investigation conducted, or report issued, on the
   location of missing persons, where the information
   gathered has been verified or confirmed by the
   investigator.
2. Any investigation conducted, or report issued, on the
   location of missing property or the cause or
   consequences of a property loss (e.g., fire or
   accident), where the purchaser of the investigative
   service is not an insurance company or adjuster.

Therefore, based on the foregoing, it is the Department's
position that the following services performed by Investigator
are not subject to tax:

1. The investigation of facts of insurance claims in the
   course of claims adjustment.
2. The retrieval of public records, in person and
   electronically, provided such records are not
   elaborated upon, verified, or confirmed by
   Investigator.
3. The examination of the scene of insurance claims
   relative to the loss on behalf of insurance companies
   adjusting claims.

4. Information provided to insurance companies relative
to the cause and extent of a loss.

5. Examinations conducted relative to code compliance or
   fire prevention.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advise as specified in Section 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 advise 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 Section 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 response.

Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

ctrl# 27518