Are a security firm's guard services, provided to a contractor working on a NYC government construction project, subject to NY sales tax?

Plain-English summary

The petitioner is a New York-licensed private investigator / security guard firm. It provides guard services as a subcontractor to a construction company that is the prime contractor with the New York City Department of Transportation to rehabilitate the Brooklyn Bridge. The prime contractor gave the firm no exemption certificates. The firm asked whether it must charge and collect sales tax on the guard services.

The Office of Counsel concluded it must:

• Guard services are taxable. Tax Law 1105(c)(8) imposes sales tax on protective and detective services, expressly including guard, patrol, and watchman services of every nature, whether or not property is transferred with them.
• The government's exemption doesn't pass through. This mirrors Matter of MGK Constructors, where a contractor building a City water tunnel subcontracted for required guard services. The Tribunal held those guard services were taxable: the City's exemption as a government entity did not extend to the contractor because the contractor -- not the City -- was the direct purchaser of the services.
• Not a purchase for resale. The contractor wasn't buying the guard services for resale to the City; they were "one of many expense items" -- an item of overhead -- necessary to perform its construction contract. So the resale exclusion doesn't apply.

Like MGK, here the prime contractor is the direct purchaser of the guard services for its own contract, so the security firm must charge and collect sales tax from the contractor.

What this means for you

Security and other protective-service firms

When you provide guard, patrol, alarm, or other protective services, those charges are taxable under 1105(c)(8). Selling to a contractor on a government job does not make your charge exempt: the government's exemption belongs to the government, and it doesn't flow through to a private prime contractor who is the direct purchaser. Collect tax (and get a valid exemption or resale certificate before you don't) -- a stray "it's for a City project" isn't enough.

Contractors on government projects

Protective services you buy for a public job are generally taxable to you -- they're an overhead expense, not a resale to the government, and the government's exemption doesn't pass through. Budget for the tax on guard and similar services.

Common questions

Q: We guard a government construction site -- is our charge tax-exempt because the owner is the City?
A: No. Guard services are taxable, and the City's exemption doesn't pass through to the contractor who actually buys the services.

Q: Isn't the contractor reselling our service to the City?
A: No. The protective service is an overhead expense item for performing the construction contract, not a purchase for resale (Matter of MGK Constructors).

Q: Who owes the tax?
A: The contractor, as the direct purchaser -- and the security firm must charge and collect it.

Citations and references

• Tax Law section 1105(c)(8) (protective and detective services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(21)S
Sales Tax
July 15, 2011

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S110411A

The Department of Taxation and Finance received a petition for Advisory Opinion from
name redacted. Petitioner asks whether it is required to charge and collect sales taxes on the
security services it provides to a construction company providing construction services to the
New York City Department of Transportation. We conclude that it is required to charge and
collect sales tax on those security services.
Facts
Petitioner is licensed by the State of New York as a private investigator and provides
security guard services to both government and nongovernment entities. Petitioner has a contract
with name redacted a construction company, as a subcontractor to provide security guard
services on several projects where name redacted is the primary contractor with the New York
City Department of Transportation to perform all labor and furnish all materials and equipment
for the rehabilitation of the Brooklyn Bridge. Name redacted will be referred to as the primary
contractor in this advisory opinion. The Petitioner’s contract with the primary contractor
specifies that sales tax would be charged. The primary contractor did not provide Petitioner with
any exemption certificates. Petitioner asks whether it is required to charge and collect sales tax
from the primary contractor for those security guard services.
Analysis
Section 1105(c)(8) imposes sales tax on the provision of
“[p]rotective and detective services, including, but not limited to, all services provided by
or through alarm or protective systems of every nature, including, but not limited to, protection
against burglary, theft, fire, water damage or any malfunction of 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 watchman licensed by the waterfront commission of New York harbor,
whether or not tangible personal property is transferred in conjunction therewith.”
The state and local sales tax on protective and detective services was enacted in 1990.
Prior to the enactment of section 1105(c)(8), New York City imposed sales tax on those same
services (Administrative Code of City of New York, § 11-2040[a][2). The New York City
sales tax was at issue in the Tax Appeals Tribunal decision in Matter of MGK Constructors
(TSB-D-92(23)S, March 5, 1992).

-2-

TSB-A-11(21)S
Sales Tax
July 15, 2011

The facts in that decision are similar to the facts in this petition. MGK Constructors
(MGK) had a contract with the New York City Department of Environmental Protection, for the
building of part of a tunnel under the East River. Under that contract, MGK was required to
provide security guard services. It subcontracted for those security guard services with another
firm. The Tribunal concluded that the provision of the guard services constituted taxable
services. The exemption enjoyed by the City of New York as a governmental entity did not
extend to MGK because the City was not the direct purchaser of those services. The services
were purchased by MGK and were essentially “one of many expense items which were
necessary to satisfy the contractual obligation of constructing a water tunnel”. The Tribunal
further decided that MGK was not purchasing the protective services for resale to the New York
City Department of Environmental Protection, finding that the services were in the nature of an
item of overhead, rather than a purchase for resale.
Like MGK, the primary contractor has a contract with a department of the City of
New York to provide construction services. Also, like MGK, the primary contractor has
contracted with a company, in this instance, the Petitioner, for the provision of protective
services. As the Tribunal concluded in Matter of MGK Constructors, those protective services
are subject to sales tax and Petitioner is liable for charging and collecting those taxes.

DATED: July 15, 2011

NOTE:

/S/
DEBORAH LIEBMAN
Deputy Counsel

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.