Is a forensic engineer's accident-investigation and expert-report work a taxable detective service, and does out-of-state delivery change the answer?

Plain-English summary

Stanley Greenfield is an engineer specializing in machine design. Semi-retired with a single client — a New Jersey law firm — his work involves inspecting industrial machinery involved in accidents, researching machine-design standards and codes, and preparing engineering reports and testimony at pre-trial hearings and trial, all aimed at establishing negligence in industrial products-liability cases. All his reports are delivered to the client in New Jersey. He asked whether his work is a taxable protective and detective service under § 1105(c)(8).

The Department's answer has two parts.

• His work is a detective service. Section 1105(c)(8) (enacted by Chapter 190 of the Laws of 1990) taxes protective and detective services. Detective work generally includes investigations to obtain information about the causes of accidents, damage, or injury and securing evidence for use in trials or hearings (13 NY Jur 2d, Businesses and Occupations § 284). The Department noted the statute is substantially similar to the New York City provision (§ 1212-A(b)(2)(i)(B)), and that Publication 849 already treated trial-preparation investigating to evaluate a claim as a taxable detective service when the reports are delivered in New York City. So Greenfield's activities come within § 1105(c)(8).
• But delivery out of state isn't taxed. Under the destination-tax rule of § 525.2(a)(3), the point of delivery controls. Because Greenfield's reports are delivered to his New Jersey client, the charges are not subject to New York sales tax.

What this means for you

Forensic and investigative reports can be a taxable "detective service"

New York's 1990 expansion of the sales tax to protective and detective services reaches more than private eyes and alarm companies. Investigating the cause of an accident, gathering evidence, and preparing reports to establish liability for litigation is detective work for tax purposes — even when the investigator is a licensed professional like an engineer, and even when the deliverable is an expert report rather than a surveillance file.

Where you deliver the report decides whether New York taxes it

This is the practical hinge. New York's sales tax is a destination tax: the charge is taxable based on where the report is delivered, not where the investigation happened. A report delivered to an out-of-state client — here, a New Jersey law firm — is not subject to New York sales tax, even though the machinery inspected and the work performed may have been in New York. Delivered to a New York client, the same report would be taxable.

Keep records of delivery

Because delivery location controls, an investigator or forensic expert serving clients in and out of New York should document where each report is delivered to support charging (or not charging) New York tax.

Common questions

Q: Is a forensic engineer's accident-investigation report a taxable service?
A: Yes, in concept. Investigating the causes of accidents and gathering evidence for litigation is a protective and detective service under § 1105(c)(8).

Q: Then why weren't Greenfield's charges taxed?
A: Because his reports were delivered to a client in New Jersey. Under the destination-tax rule (§ 525.2(a)(3)), a service delivered outside New York is not subject to New York sales tax.

Q: Would it be taxable if delivered to a New York client?
A: Yes. The same report delivered to a client in New York would be a taxable detective service.

Q: Does being a licensed engineer make it a nontaxable professional service?
A: Not here. The Department treated the accident-investigation and evidence-gathering work as a detective service regardless of the professional label; only the out-of-state delivery kept it untaxed.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(8) — tax on protective and detective services (enacted by Chapter 190 of the Laws of 1990)
• 20 NYCRR § 525.2(a)(3) — the sales tax is a "destination tax"
• Tax Law § 1212-A(b)(2)(i)(B) — parallel New York City tax on protective and detective services

Cited authority and guidance:

• 13 New York Jurisprudence 2d, Businesses and Occupations § 284 (scope of detective services)
• NYS Dept. of Taxation and Finance, Publication 849, Sales Tax Information on Selected Services in New York City (1/89), at 8

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_35s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-90(35)S
Sales Tax
July 24, 1990

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900618B

On June 15, 1990 a Petition for Advisory Opinion was received from Stanley Greenfield, 55
Knolls Crescent #10B, Bronx, New York 10463.
The issue raised by Petitioner, Stanley Greenfield, was whether his professional activities
constitute the carrying on of a protective and detective service subject to the imposition of sales tax
pursuant to Section 1105(c)(8) of the Tax Law.
Petitioner is an engineer specializing in machine design. As an engineer specializing in
machine design his function is to analyze machine design practices and standards. His work product
consists of engineering reports that analyze design standards, machine design practices, and attempt
to establish negligence as related to industrial products liability.
His professional activities include the inspection of industrial machinery involved in
accidents, library research pertaining to machine design standards and codes, preparation of
engineering reports and testimony at pre-trial hearings and at trial. All these professional activities
pertain only to machine design.
He is semi-retired with a one-client practice; a law firm in New Jersey. All his engineering
reports are delivered to his client in New Jersey.
Section 1105(c)(8) of the Tax Law as enacted by Chapter 190 of the Laws of 1990 imposed
sales tax upon:
Protective 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.
Section 525.2(a)(3) of the Sales and Use Tax Regulations provides:
The sales tax is a "destination tax," that is, the point of delivery or point
at which possession is transferred by the vendor to the purchaser or
designee controls both the tax incident and the tax rate. For special rule
relating to motor vehicles, see Part 540 of this Title.
TP-9 (9/88)

-2­
TSB-A-90(35)S
Sales Tax
July 24, 1990

Generally detective services include activities by an individual who among other things
makes investigations to obtain information regarding the causes of accidents, damage or injury or
is engaged in securing evidence to be used in trials or hearings. (13 New York Jurisprudence 2d,
Businesses and Occupations §284, at 103).
Section 1105(c)(8) of the Tax Law is substantially similar to Section 1212-A(b)(2)(i)(B) of
the Tax Law allowing New York City to impose sales tax on protective and detective services.
New York State Department of Taxation and Finance, Sales Tax Information on Selected
Services in New York City, Publication 849 (1/89) in listing protective and detective services subject
to the New York City sales tax states at page 8:
"Q.

Are the services of trial preparation investigating, for the purpose of
evaluating the merits of a claim with respect to fixing a settlement values,
subject to the 4% sales tax imposed by New York City?

A.

Yes, when the reports are delivered to a client in New York City."

Therefore Petitioner's activities in obtaining information regarding defective machinery for
use in establishing negligence in tort cases comes within the definition of protective and detective
services as intended by Section 1105(c)(8) of the Tax Law.
However if the reports are sent to a client of Petitioner located outside of New York State,
such as attorneys located in New Jersey, then the charge for the reports are not subject to sales tax
pursuant to Section 525.2(a)(3) of the Sales and Use Tax Regulations.

DATED: July 24, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.