My regulatory-compliance and investigative firm offers 15 different service lines (AML, OFAC, fraud reviews, forensic technology, background checks, training, and more) — which of these count as taxable 'detective services' in New York, and which are untaxed advisory work?

Plain-English summary

A licensed private-investigator firm (referred to as "Company" throughout the opinion) provides an extensive menu of regulatory-compliance, forensic, and investigative services to financial institutions, public companies, and government entities — anti-money-laundering (AML) compliance, OFAC sanctions compliance, M&A due diligence, transaction "look-back" reviews, Foreign Corrupt Practices Act (FCPA) compliance, fraud and misconduct reviews, forensic technology/electronic discovery, background investigations, litigation support, securities-industry compliance, Independent Private Sector Inspector General (IPSIG) and monitoring work, stock-option investigations, regulatory training, school-district fraud reviews, and healthcare compliance.

The Department's core distinction cuts across all fifteen service lines rather than treating each one as categorically taxable or untaxed:

• Pure advisory/consulting and training work — reviewing a client's existing policies and procedures against regulatory requirements, developing compliance programs, and training staff — is not taxable, because general advisory/consulting and instructional services aren't among New York's enumerated taxable services.
• Actual detective/investigative work — investigating specific persons or acts of wrongdoing (identifying fraud, gathering evidence, interviewing witnesses, preparing for and giving testimony) — is taxable as a "protective and detective service" under Tax Law §1105(c)(8), because New York courts equate "detective services" with the broad private-investigator definition in General Business Law §71(1), and this firm performs such work under its own New York private-investigator license.

Applying that line: AML Compliance, OFAC Compliance, Transaction Look-Backs, FCPA Compliance, Stock Options Investigations, and Healthcare Compliance are untaxed when they stay within regulatory-compliance review and program development. Securities Industry Compliance and Investigations and Regulatory Training are untaxed instructional/advisory services too — unless the firm goes further and investigates specific wrongdoing, at which point the investigative piece becomes taxable. Due Diligence for M&A, Fraud and Misconduct Reviews, Forensic Technology Services, General Litigation Support, IPSIG/Monitoring Services, and School District Fraud typically do involve investigating specific wrongdoing, evidence recovery, and testimony — so charges for those services are generally taxable detective services. Background Investigations get their own three-way split: merely gathering publicly available information is a taxable information service (not detective work); actually investigating (verifying facts, interviewing witnesses, background-checking) as a licensed investigator is a taxable detective service; but using that gathered information purely to advise the client on investment/financial risk is untaxed advisory work.

Software wrinkle: to the extent the firm gives clients direct access to its own proprietary tools (e.g., the risk-assessment tool in Transaction Look-Backs, electronic journal/payee filters in FCPA work, forensic-technology applications), that access could separately be a taxable sale of prewritten software.

Bundling rule: if taxable detective-service charges are bundled with untaxed advisory/training charges in one price, the entire charge becomes taxable — unless the untaxed and taxable pieces can be purchased separately and are separately stated and reasonable on the invoice, in which case only the detective-service portion is taxed.

Exempt customers: sales to §1116(a)-certified exempt organizations or government entities (e.g., school districts) aren't taxable if the firm gets a properly completed Exempt Organization Exempt Purchase Certificate (Form ST-119.1) or government purchase order within 90 days of delivery, and keeps that documentation on file.

What this means for you

Compliance consulting and forensic investigation firms

Don't assume your whole practice is either categorically taxable or untaxed — the line runs through individual engagements, sometimes even through a single service line. Track whether a given engagement stays at policy review/program design/training, or crosses into investigating specific persons/wrongdoing, gathering evidence, or preparing for testimony. The latter triggers detective-service tax; the former doesn't.

Firms bundling advisory and investigative work in one engagement

If an engagement mixes untaxed advisory/training work with taxable investigative work, structure your invoice to separately state reasonable charges for each — otherwise the whole engagement becomes taxable.

Background-check and due-diligence providers

Whether your background-investigation fee is taxed depends on what you actually do with the information: pure information-gathering is a taxable information service, actual investigative verification work (as a licensed investigator) is a taxable detective service, and using the gathered facts solely to advise on investment/financial risk is untaxed.

Accountants and tax professionals

This opinion is one of the most granular activity-based (not service-line-based) breakdowns in the corpus — a strong template for classifying any multi-service professional engagement that straddles consulting and investigative/detective work. It also flags a software wrinkle worth checking whenever a compliance firm gives clients direct access to proprietary risk-assessment tools.

Common questions

Q: We're a licensed private investigator firm, but most of our work is policy review and training — is all of it taxable just because we're licensed as investigators?
A: No. Licensing status alone doesn't make a service taxable. What matters is whether the specific work performed is genuine detective/investigative activity (per General Business Law §71(1)) versus general advisory/consulting or instructional work.

Q: We do a compliance review, and if we find something wrong, we then investigate the specific misconduct — how is that taxed?
A: The compliance-review portion stays untaxed advisory work; the moment the engagement extends into investigating specific persons or acts of wrongdoing, that portion becomes a taxable detective service. Keep the two pieces separately billed if you want only the investigative work taxed.

Q: We give clients access to our own proprietary risk-assessment software as part of an engagement — does that change the tax treatment?
A: Potentially yes — separate from the service classification, providing access to prewritten software could itself be a taxable software sale under Tax Law §1105(a).

Q: We bundle advisory work and investigative work into one flat fee — is the whole thing taxable?
A: Yes, unless the advisory and investigative pieces can be purchased separately and are separately stated and reasonable on your invoice — in which case only the investigative/detective-service charge is taxed.

Q: We provide services to a government agency or a certified exempt organization — do we need to collect tax?
A: No, as long as you obtain the proper documentation (an Exempt Organization Exempt Purchase Certificate, Form ST-119.1, or a government purchase order) within 90 days of delivering the service, and retain it in your records.

Q: Can any compliance/investigative firm rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described across all fifteen service lines. A firm's specific mix of advisory-versus-investigative activity within any one engagement needs its own analysis.

Citations and references

Statutes and regulations:

• Tax Law §1105(c)(1) (information services); §1105(c)(8) (protective and detective services)
• Tax Law §1105(a) (tax on tangible personal property, including prewritten software)
• Tax Law §1110(a)(C) (compensating use tax on detective/information services)
• Tax Law §1101(b)(3) (bundled taxable/nontaxable transaction rule)
• Tax Law §1116(a) (exempt organizations and government entities); §1132(c) (exemption documentation)
• 20 NYCRR §533.2; Part 529 (exemption certificate recordkeeping)
• General Business Law §70, §71(1) (private investigator licensing and definition)

Cited cases and opinions:

• Compass Adjusters and Investigators Inc. v Commissioner of Taxation and Finance, 197 AD2d 38 ("detective services" equated to the General Business Law private-investigator definition)
• VR Investigations Inc., TSB-A-08(19)S
• Hotchkiss, Stone & Longtin LLC, TSB-A-99(3)S (background investigations as detective services)
• Penfold v State Tax Commission, 114 AD2d 696 (bundling rule)
• Hodgson, Russ, Andrews, Woods and Goodyear, TSB-A-92(31)S
• PricewaterhouseCoopers LLP, TSB-A-03(11)S

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(4)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(4)S
Sales Tax
January 29, 2009

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S071120A

On November 20, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Arthur R. Rosen, McDermott Will & Emery LLP, 340 Madison Avenue,
New York, New York 10173. Petitioner, Arthur R. Rosen, submitted additional information
relating to the Petition on February 11, 2008, April 11, 2008, and July 16, 2008.
The issue raised by Petitioner regarding its client (Company) is whether Company’s
charges to its clients for the services described below are subject to New York State and local
sales or use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Company is a limited liability company organized under the laws of the state of
Delaware. Company currently has offices in New York, the District of Columbia, Florida, and
London. Company provides services relating to its clients’ compliance with various regulatory
requirements, including those imposed pursuant to certain federal and state statutes as well as
requirements imposed by both domestic and international securities industry bodies. Company
utilizes its legal, regulatory, law enforcement, forensic accounting, forensic technology and
investigative due diligence capabilities to perform its functions. Company is licensed as a
private investigator in the state of New York.
Company’s services are regularly provided to financial institutions, publicly traded
companies, private enterprises, and government entities. Because the banking and securities
regulators have set forth specific rules and guidelines that must be followed by banking and other
financial service companies, regular compliance examinations and the development or
remediation of the compliance, regulatory reporting and critical processes of such companies
must be performed, often by an independent party such as Company. Often to ensure or test
compliance, certain services must be re-performed, tested or audited using a variety of
methodologies and tools to ensure that a client is in compliance with its regulatory requirements.
In addition, the various industry regulators often require certain periodic and transactional filings
to be made to maintain an overview of a client’s activities. If a company has been examined or
audited by an agency resulting in some regulatory mandate for changes to the company’s
compliance processes, it will retain Company to help correct the exposures. Clients may retain
Company for services that may be reactive and proactive in nature.
The following is a detailed description of the services provided by Company.

-2TSB-A-09(4)S
Sales Tax
January 29, 2009
A. Anti-Money Laundering (“AML”) Compliance
The USA Patriot Act requires financial institutions to establish AML programs
that will help prevent and detect money laundering and the financing of terrorism. U.S.
financial services regulators have been issuing severe penalties for programs that do not
adhere to acceptable standards.
Under these circumstances clients may retain Company for services that include
the development and implementation of an AML program. Company performs
diagnostic review of the current policies and procedures of the client, provides an
analysis of the weaknesses and strengths of the current program, validates the client’s
compliance, performs independent testing of the client’s AML program, provides risk
assessments on suspicious activity (relating to the Bank Secrecy Act), assists with
reporting requirements (Suspicious Activity Reports), and provides training for new
policy and procedure enhancement recommendations. All of the services assist the client
in complying with federal regulatory authority.
B. The Office of Foreign Assets Control (“OFAC”) Compliance
The Office of Foreign Assets Control is a branch of the United States Department
of the Treasury. It administers and enforces economic and trade sanctions based on U.S.
foreign policy and national security goals. The OFAC rules apply to all U.S. citizens,
companies, overseas branches of U.S. companies, and certain subsidiaries of U.S.
companies.
Company’s services relating to this category entail analyzing the client’s business
with a goal of identifying specific OFAC risks and developing a customized compliance
program with detailed policies and procedures for the client to follow. A diagnostic
review of the client’s existing OFAC compliance program is performed comparing it to
the legal requirements of OFAC. A review is also performed of the filtering software
used by the client to determine whether it is correctly suited to a specific business line or
product.
C. Due Diligence for Mergers and Acquisitions
Company’s services relating to this category include a review of a target
company’s policies, procedures, and programs relating to compliance with OFAC and
AML rules and regulations. Company’s client requests this service to determine whether
there is any compliance, financial, or reputation risk associated with a potential
acquisition target and how it would affect its business. If a potential risk in business
transactions, procedures, compliance or any other area is identified, it may negatively
affect the current business of the client if the acquisition is made.

-3TSB-A-09(4)S
Sales Tax
January 29, 2009
D. Transaction Look Backs
Financial regulators have been requiring institutions to implement transaction
monitoring look-back projects to remediate any shortcomings in their Suspicious Activity
Reporting (“SAR”) programs.
Company’s services in this category are composed of the risk assessment of
hundreds of millions of transactions. A customized risk assessment tool and case
management system has been developed by Company and customized to the client’s
needs. The tool and system aid in identifying potentially suspicious transactions and
preparing cases to facilitate the look-back review. Data normalization, categorizing,
stratifying and grouping of data is part of the methodology for performing the review.
Also part of the service is risk assessment scoring and case creation, which is the
identification of transactions or groups of transactions that carry a certain risk element
and are identified as a case for further review relative to known typologies for money
laundering or terrorist financing. Company also may provide quality assurance of the
review, participate in meetings with regulators, or oversee the entire transaction
monitoring look-back review.
The second phase of a look-back project consists of analyzing the transactions and
parties to ascertain whether the indicia of money laundering suspicion that presented
itself via the technology review remain relevant when carefully scrutinized. More
specifically, analysts summarize the transactional activity and summarize the results of
the application of hundreds of programmed risk assessments, analyze the flow of funds,
geographies and other information compiled by the financial institution [such as
previously filed Suspicious Activity Reports (“SARs”), Know Your Customer files, and
internal watch-lists] and compare this data to the parties identified and any public records
relating to them. The work product from this analysis is summarized in a factual
memorandum and becomes part of the financial institution’s case files.
Additionally, examinations that support the indicia of suspicion relating to money
laundering via the application of risk assessments and researching of parties are presented
to the financial institution for its further evaluation with respect to a SAR filing, as
required by the Treasury Department’s Financial Crimes Enforcement Network
(“FinCEN”); that filing will be pursuant to a memorandum of fact. Furthermore, SAR
filings require the information therein to be provided only to FinCEN, and be subject to a
limited distribution within the financial institution for its further review in connection
with closing the case, which also requires a memorandum of fact. Each such look-back
project can consist of analyzing thousands of unique transactions and work products
unique not only to the specific transaction, but also to the specific financial institution
client.

-4TSB-A-09(4)S
Sales Tax
January 29, 2009
E. Foreign Corrupt Practices Act (“FCPA”) Compliance
The Foreign Corrupt Practices Act was enacted to prevent corporations from
bribing foreign officials for the purpose of winning contracts abroad. Along with the
anti-bribery provision, there are “books and records” provisions that require the financial
records of SEC-regulated issuers of securities to be maintained in a transparent manner
with enough detail that if illicit payments were made they could be identified.
Company’s services in this category are composed of making FCPA vulnerability
assessments, including books and records analyses, as well as electronic journal entry or
payee filtering. Company also assists in developing an FCPA program, policies, and
procedures and trains all applicable employees of the client. Company may also assist in
investigations relating to FCPA compliance.
F. Fraud and Misconduct Reviews
Fraud, waste, abuse, and other misconduct by an organization’s employees, managers
or executives, or external affiliations can create negative perceptions about the integrity
of the organization and have a negative financial impact.
Company provides fraud detection services to ensure the financial security and
integrity of a company. On a prospective basis, Company provides guidance to manage
risks, assess internal controls, programs and processes and also assists in measuring a
company’s ability to prevent and detect fraud from occurring. On a reactive basis,
Company assists by performing an assessment of the magnitude of the occurrence,
quantifies and evaluates the impropriety and helps identify the responsible parties. The
assessment is performed through reviewing applicable documents, analyzing data,
conducting interviews and preserving and recovering digital evidence. Company
provides recommendations to mitigate the impact of the occurrence, implements internal
controls, and prepares reports of its findings to the client either for internal use or for
legal proceedings. Company’s personnel are sometimes called upon to provide testimony
at court hearings, depositions or trials as a fact, summary, or expert witness.
G. Forensic Technology Services
Company, through its electronic forensic evidence services, can identify
electronic documents, whether in plain sight, hidden, or deleted. Its toolset and discovery
method collects and analyzes the data without compromising the integrity of the
document or information retrieved. Strict disciplines are used to maintain a chain of
custody when retrieving and analyzing data as it may be used in conjunction with
investigations or legal proceedings.

-5TSB-A-09(4)S
Sales Tax
January 29, 2009
Company may also provide electronic discovery services to the client through the
indexing and sorting of high volume documents. Company manages the documents,
categorizes them and provides a database host to be used by its client when a search
within the documents is needed.
H. Background Investigations
A client may require Company to analyze its potential exposure to certain risks by
conducting background investigations. In such instances Company researches the history
of a company or individual by gathering and analyzing publicly available information.
The information obtained may relate to personal history, financial history, business
transactions and relationships, investments, litigation, and any other category relevant to
the cause of interest. These services are used by Company’s clients to determine whether
they should engage in certain business transactions, to identify strengths and weaknesses
in policy and procedure within an organization, and for regulatory compliance or other
business purposes, including acquisitions-related due diligence.
Company then analyzes and cross references the information gathered. The
information gathered is then subject to detailed and comprehensive analysis conducted by
Company. Company would then prepare a written report setting forth the client’s
objectives, a summary of the data resources queried and of the research process, an
executive summary of substantive findings, followed by the body of the report that would
provide a detailed account of any substantive findings. Each report concludes with a
specific and detailed list of recommended additional research steps that could be explored
should the client wish to proceed further.
Upon delivery of the written report, Company would then schedule an in-person
or telephone conference with the client to review the analysis and recommendations, to
assist the client in interpreting and utilizing the report to meet its objectives as well as to
brainstorm additional ideas about possible next steps. Company’s work product is highly
one client, including both the research and analysis, is relevant to any other client as both
the research and the analysis are tailored to the specific needs of the particular client.
I. General Litigation Support
The services discussed above are mainly provided for internal use by Company’s
clients. However, the services may also be provided as litigation support for legal
proceedings. As such, in addition to the services described in previous sections A
through H, Company may prepare analyses such as potential settlement scenarios,
modeling, and analyses of financial implications. Additionally, certain personnel of
Company perform expert witness services related to Company’s core competencies and
service offerings.

-6TSB-A-09(4)S
Sales Tax
January 29, 2009
J. Securities Industry Compliance and Investigations
Securities firms are required to comply with various regulatory authorities.
Failure to comply can lead to civil and criminal liability for a firm, its officers and
directors, as well as monetary fines and damages, potential loss of market share, and
damage to the reputation of the firm. It is important for a firm to develop and execute
policy procedures, and internal controls that ensure compliance with the applicable
regulatory requirements.
Company’s services in this category consist of conducting in-depth reviews and
assessments of the client’s current compliance program and developing and
implementing the necessary solutions to ensure that the programs satisfy the relevant
regulatory requirements, but are flexible to change with regulatory changes. Company
may also formulate and conduct training and educational programs for the client’s
employees. The reviews, assessments, and training may cover any field of compliance,
including broker-dealer and investment advisory supervisor obligations, market timing
and late trading, sales practices and order handling, fraud and misconduct, and issues
relating to gifts and gratuities.
K. Independent Private Sector Inspector General (“IPSIG”) and Monitoring Services
An IPSIG is an independent private sector firm with legal, audit, investigative and
loss prevention skills. It is employed by an organization or government entity, either
voluntarily or by compulsory process, seeking to attain compliance with relevant laws
and regulations. It also aids companies with efforts to deter, uncover, and/or report
unethical and illegal conduct by, within, or against the entity. The IPSIG is usually
selected by and reports to a government entity while the organization is responsible for
related costs.
Company’s services in this category consist of providing IPSIG services to an
organization. An employee of Company is selected by the government to be the IPSIG
for a specific organization. Company’s employees ensure compliance with governing
laws, contract terms, court orders, and settlements. In addition, Company may conduct
an investigation into financial improprieties, fraud, and misconduct. Company designs
and implements a program to respond to the impropriety that resulted in the IPSIG being
assigned. Testimony and/or written reports may be provided for administrative and court
proceedings if requested.
Monitoring services include risk management program assessments, internal
control assessments, evaluations of current compliance programs, data analyses,
background investigations, and fraud investigations.

-7TSB-A-09(4)S
Sales Tax
January 29, 2009
L. Stock Options Investigations
Public corporations may grant stock options to senior executives. Many have
come under scrutiny stemming from questionable accounting and disclosure of these
grants. Investigations have focused on whether companies may have “backdated” the
option to dates when the related stock was selling at a lower price. This potentially
enhances the value of the option.
Company’s services include assisting clients with analyzing the potential risks
associated with the granting and disclosing of stock options. The risks include regulatory
enforcement actions, criminal prosecution, civil lawsuits, adverse tax implications, and
insurance liability for directors and officers. Company assists with internal or
independent audit processes to conduct efficient, extensive reviews, and reviews SEC
filings and supporting documentation. Company may also review, assess, develop and
implement enhancements to a company’s internal control standards, policies, and
procedures.
M. Regulatory Training
Company’s services in this category consist of providing training to responsible
parties within an organization to maintain and update their knowledge of compliance with
regulated industry standards. Company creates the subject matter content, selects and/or
produces the training materials, selects and trains instructors, determines the ideal format
for the training, and creates a maintenance system for preserving training materials and
employee participation. Each training program is specifically tailored to each client’s
needs.
.

N. School District Fraud
Company’s services in this category consist of fraud and misconduct reviews
within a school district’s administration. Company assists the district with complying
with the state comptroller’s accountability and reform requirements and assists in
the prevention, detection, and investigation of fraud and misconduct matters. Company
conducts interviews, gathers and reviews information, prepares fact-finding reports,
and provides expert witness services in court proceedings. Forensic accounting service
may entail an examination of an organization’s books and records to identify suspected
fraud, misconduct irregularities, or improprieties. A systematic assessment of the
organization’s internal controls and accounting systems are reviewed to identify potential
areas of weakness; Company also provides recommendations to mitigate the risk of
accounting errors. Data analysis may be conducted to detect fraud. This involves
obtaining and merging data sets from multiple sources and analyzing the information to
identify errors, fraudulent activity, or anomalies in data.

-8TSB-A-09(4)S
Sales Tax
January 29, 2009
O. Healthcare Compliance
Company’s services relating to this category include developing effective and
comprehensive compliance programs specific to the health care provider type in
accordance with applicable federal and state laws and regulations. Company also designs
and implements policies and procedures tailored to the specific needs of the health care
institution, in accordance with all prevailing requirements by the Centers for Medicare &
Medicaid Services, the United States Department of Health and Human Services, the
Federal Sentencing Guidelines, and all applicable state regulatory agencies. In
connection with adherence to federal and state regulatory requirements, Company
develops and conducts specific compliance training procedures for a client’s employees.
Another part of this service includes conducting risk assessments or diagnostic
studies to identify high risk areas of potential exposure and compliance deficiencies for a
specific health institution or provider.
Because of those potential compliance
deficiencies, Company may test and monitor the effectiveness of a client’s existing
compliance plan, including claim submission processes, education and training, and
applicable standards of conduct. Company may also conduct internal compliance
investigations, determine findings, and make corrective recommendations to the client.
Additionally, Company’s services in this category include coding review by its
expert certified coding specialists, auditing and analyzing medical records and claims,
performing statistically-based data mining and billing database analyses, providing cost
report analyses and serving as an Independent Review Organization under the terms of a
Corporate Integrity Agreement.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. On and after June first, nineteen hundred seventy-one,
there is hereby imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or
multigraphed matter or by duplicating written or printed matter in any other
manner, including the services of collecting, compiling or analyzing information

-9TSB-A-09(4)S
Sales Tax
January 29, 2009
of any kind or nature and furnishing reports thereof to other persons, but
excluding the furnishing of information which is personal or individual in nature
and which is not or may not be substantially incorporated in reports furnished to
other persons,...
*

*

*

(8) Protective and detective services, including, but not limited to, all
servicesprovided by or through alarm or protective systems of every nature,
including, but not limited to, protection against burglary, theft, fire, water damage
or any malfunctionof industrial processes or any other malfunction of or damage
to property or injury to persons, detective agencies, armored car services and
guard, patrol and watchman services of every nature other than the performance
of such services by a port watchmanlicensed by the waterfront commission of
New York harbor, whether or not tangible personal property is transferred in
conjunction therewith.
Section 1110(a)(C) of the Tax Law imposes compensating use tax on the use within
New York “of any of the services described in paragraphs (1), (7) and (8) of subdivision (c) of
section eleven hundred five.”
Section 70 of the General Business Law provides, in part:
Licenses

1. The department of state shall have the power to issue separate licenses to
   private investigators, bail enforcement agents and to watch, guard or patrol agencies. . . .
   *

*

*

3. No person, firm, company, partnership, limited liability company or
   corporation shall engage in the business of furnishing or supplying for fee, hire or any
   consideration or reward information as to the personal character or activities of any
   person, firm, company, or corporation, society or association, or any person or group of
   persons, or as to the character or kind of the business and occupation of any person, firm,
   company or corporation, or own or conduct or maintain a bureau or agency for the above
   mentioned purposes . . . without having first obtained from the department of state, as
   hereafter provided, a license so to do as private investigator for each such bureau or
   agency and for each and every sub-agency, office and branch office to be owned,
   conducted, managed or maintained by such persons, firm, limited liability company,
   partnership or corporation for the conduct of such business. Nothing contained in this
   section shall be deemed to include the business of adjusters for insurance companies, nor

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January 29, 2009
public adjusters licensed by the superintendent of insurance under the insurance law of
this state.
Section 71(1) of the General Business Law provides, in part:
“Private investigator” shall mean and include the business of private investigator
and shall also mean and include, separately or collectively, the making for hire, reward or
for any consideration whatsoever, of any investigation, or investigations for the purpose
of obtaining information with reference to any of the following matters, notwithstanding
the fact that other functions and services may also be performed for fee, hire or reward ;
crime or wrongs done or threatened against the government of the United States of
America or any state or territory of the United States of America; the identity, habits,
conduct, movements, whereabouts, affiliations, associations, transactions, reputation or
character of any person, group of persons, association, organization, society, other groups
of persons, firm or corporation; the credibility of witnesses or other persons; the
whereabouts of missing persons; the location or recovery of lost or stolen property; the
causes and origin of, or responsibility for fires, or libels, or losses, or accidents, or
damage or injuries to real or personal property; or the affiliation, connection or relation of
any person, firm or corporation with any union ,organization, society or association . . . or
with reference to the conduct, honesty, efficiency, loyalty or activities of employees,
agents, contractors, and sub-contractors; or the securing of evidence to be used before
any authorized investigating committee, board of award, board of arbitration, or in the
trial of civil or criminal cases. . . .
Opinion
Company provides services relating to its clients’ compliance with various regulatory
requirements, including those imposed pursuant to certain federal and state statutes as well as
requirements imposed by both domestic and international securities industry bodies. Company
utilizes its legal, regulatory, law enforcement, forensic accounting, forensic technology and
investigative due diligence capabilities to perform its functions. Company is licensed as a
private investigator in the state of New York. As part of Company’s provision of compliance
review services, Company may also be asked to investigate and identify specific acts of
wrongdoing, including identifying fraud, and preparing and testifying for legal proceedings.
The provision of protective and detective services is subject to the sales tax under section
1105(c)(8) of the Tax Law. As the Tax Law contains no definition of detective services or
detective agency, the courts have found it appropriate to equate the terms "detective services"
and "detective agencies" to the "broad definition of private investigator" found in section 71 of
Article 7 of the General Business Law. See Compass Adjusters and Investigators Inc. v
Commissioner of Taxation and Finance (197 AD2d 38). As described in section 71(1) of the
General Business Law such services include, for example, investigations for the purpose of
obtaining information with reference to the identity, habits, conduct, movements, whereabouts,

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January 29, 2009
affiliations, associations, transactions, reputation or character of any person, group of persons,
association, organization, society, other groups of persons, firm or corporation; or securing
evidence to be used in the trial of a civil or criminal case. See VR Investigations Inc., Adv Op
Comm T& F, April 28, 2008, TSB-A-08(19)S.
Therefore, in instances where any of the services being performed by Company requires a
private investigator’s license issued under Article 7 of the General Business Law, Company’s
sales of such services are subject to sales and use tax imposed under sections 1105(c)(8) and
1110(a)(C) of the Tax Law. The charges to the client for performance of such detective services
are subject to sales tax at the rate in effect where the services are delivered.
Company’s services that relate solely to the performance of regulatory compliance
reviews of the business practices of the client to determine whether the client’s practice and
procedures comply with various regulatory requirements are advisory and consulting services
and are not among the enumerated services taxed pursuant to the provisions of section 1105 of
the Tax Law.
Accordingly, to the extent that the services entitled Anti-Money Laundering Compliance,
The Office of Foreign Assets Control Compliance, Transaction Look Backs, Foreign Corrupt
Practices Act Compliance, Stock Options Investigations, and Healthcare Compliance relate only
to the performance of regulatory compliance reviews such services are not subject to sales tax.
The services entitled Securities Industry Compliance and Investigations and Regulatory
Training, in addition to providing services with respect to regulatory compliance, also provide
clients with staff training programs. These training programs are instructional services which
likewise are not among the enumerated services taxed pursuant to the provisions of section
1105(c) of the Tax Law. However, as part of its provision of compliance review and training
services, Company may also be asked to investigate and identify specific acts of wrongdoing,
including identifying fraud, and preparing and testifying for legal proceedings. In such instances
Company extends its service beyond merely providing clients with advice and consultation in
regard to the clients’ policies and procedures to the investigation of specific acts of wrongdoing.
When Company’s services go beyond general advisory and consulting services, Company may
be acting in its capacity as a private investigator. When Company performs activities requiring a
private investigator’s license issued under Article 7 of the General Business Law, Company’s
sale of such services are subject to sales and use tax under sections 1105(c)(8) and 1110(a)(C) of
the Tax Law. Therefore, in those instances where Company in addition to providing advice
relating to a customer’s regulatory compliance enters into a contract to perform or performs such
investigative services or any combination thereof, the charges to the client for performance of
such services are subject to the sales tax on detective services at the rate in effect where the
services are delivered.
For example, in performing the services entitled Due Diligence for Mergers and
Acquisitions, Fraud and Misconduct Reviews, Forensic Technology Services, General Litigation
Support, Independent Private Sector Inspector General (“IPSIG”) and Monitoring Services, and

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January 29, 2009
School District Fraud , it appears that Company may be asked to investigate persons; identify
specific acts of wrongdoing, including fraud; recover evidence; and prepare and testify for legal
proceedings in connection with these services. In such instances Company extends its service
beyond merely providing clients with advice and consultation in regard to the clients’ policies
and procedures to investigative work that may relate to specific acts of wrongdoing. Therefore,
in those instances where Company performs these services or any combination thereof, the
charges to the client for performance of such detective services are subject to sales tax at the rate
in effect where the services are delivered.
When providing the service entitled Background Investigations, were Company to merely
gather publicly available information, this service would be a taxable information service under
section 1105(c)(1) of the Tax Law. Similarly, in providing the service entitled Background
Investigations, if Company was hired to conduct an investigation (for example, a verification of
the accuracy or truth of such public information, or locating or interviewing witnesses or
performing background checks of individuals or corporations) in its capacity as a private
investigator, such service would be considered a taxable protective and detective service under
section 1105(c)(8) of the Tax Law. See Hotchkiss, Stone & Longtin LLC, Adv Op Comm T& F,
January 27, 1999, TSB-A-99(3)S. However, if, in providing the service entitled Background
Investigations, Company uses publicly available information it gathers for the purpose of
providing advice to the client of the potential exposures to investment or financial risk then the
receipts from sales of such service would not be subject to tax. Such service of advising a client
regarding its potential investment or financial risk would not be included among the enumerated
services taxed pursuant to the provisions of section 1105(c) of the Tax Law.
It is not clear from the facts in this Opinion to what extent, if any, Company may be
providing software to its clients for their use. (Note, for example, the risk assessment tool used
in Transaction Look Backs, the electronic journal and payee filter used in Foreign Corrupt
Practices Act Compliance, and the applications used in Forensic Technology Services.) To the
extent that access to software applications is being provided by Company to its clients, Company
may be making sales of prewritten software that are subject to sales tax under section 1105(a) of
the Tax Law.
When receipts from the sale of taxable and nontaxable items are bundled in a single
transaction, the entire charge is subject to sales tax unless the taxable and nontaxable items may
be purchased separately and the charges for such items are separately stated on Company’s bill
or invoice and are reasonable in relation to the total charges. See section 1101(b)(3) of the Tax
Law and Penfold v State Tax Commission, 114 AD 2d 696; Hodgson, Russ, Andrews, Woods and
Goodyear, Adv Op Comm T&F, April 2, 1992, TSB-A-92(31)S; PricewaterhouseCoopers LLP,
Adv Op Comm T&F, March 25, 2003, TSB-A-03(11)S. Provided that Company’s advisory
and instructional services are sold separate from and the charges for such services are reasonable
and separately stated from separately contracted charges for its performance of taxable detective
services, only the charges for the detective services will be subject to sales tax.

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Purchases by organizations described in section 1116(a) of the Tax Law are not subject to
sales and use tax. Therefore, Company's sales of its services, which are otherwise subject to tax,
to entities that have been designated as exempt organizations under section 1116(a) of the Tax
Law, or to United States or New York State government entities (e.g., school districts), will not
be subject to sales tax provided Company receives a properly completed Exempt Organization
Exempt Purchase Certificate (Form ST-119.1), or, in the case of government entities, a
government purchase order, from the purchaser within 90 days of the date of delivery of the
service. See section 1132(c) of the Tax Law and Part 529 of the Sales and Use Tax Regulations.
Company must retain such exemption documents in its records in order to prove exempt sales.
See section 533.2 of the Sales and Use Tax Regulations.

DATED: January 29, 2009

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.