Is a service that reviews a store's cash-register internal controls a taxable information or detective service?

Plain-English summary

A consultant reviews retail stores' internal controls by watching how cash-register operators ring up sales and make change, then writes a report to store management. It does no enforcement, discipline, security, or detective work -- even if it spots fraud. Its CPA asked whether this service is taxable under Tax Law 1105(c)(1) (information services) or 1105(c)(8) (protective and detective services).

The Department said, as described, it is not taxable -- but drew a clear line:

• Not a taxable service here. Observing cash-register procedures and reporting on internal controls to management is not one of the services taxed under Tax Law 1105(c)(1) or 1105(c)(8).
• But watch the protective/detective line. The Department warned that if the client instead provided unannounced investigative inspections, used "fact finders" who pose as employees to observe and report on work performance, or conducted surveillance of persons for a store owner, those would be protective and detective services taxable under section 1105(c)(8) (citing Publication 846).

What this means for you

Consultants, auditors, and loss-prevention advisers

A management-consulting or internal-controls review -- observing procedures and reporting recommendations -- is generally not a taxable protective/detective or information service. But the moment your work shifts into undercover investigation, posing as employees, or surveillance, it can become a taxable detective service under section 1105(c)(8).

The activity, not the label, controls

Whether you owe tax depends on what you actually do. "Checking internal controls" isn't taxable; "secret shoppers who surveil employees and report on them" can be. Describe your services precisely and price/tax accordingly.

Mixed engagements need care

If a single engagement includes both non-taxable consulting and taxable investigative/surveillance work, review how the services and charges are structured.

Common questions

Q: Is reviewing a store's cash-register controls taxable?
A: No, as described -- reporting to management on internal controls isn't a taxable information or protective/detective service.

Q: What would make a similar service taxable?
A: Providing undercover "fact finders" posing as employees, unannounced investigative inspections, or surveillance for the store owner -- those are taxable protective/detective services under section 1105(c)(8).

Q: Does finding fraud make it a detective service?
A: Not by itself. The consultant here did no enforcement or investigation; it simply reported on controls, which isn't taxed.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner and the facts described. Treat it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(c)(1) (sales tax on information services)
• Tax Law section 1105(c)(8) (sales tax on protective and detective services)
• NYS Dept. of Taxation and Finance Publication 846 (sales tax on selected services in New York City)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_32s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-93 (32)S
Sales Tax
May 5, 1993

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930104A

On January 4, 1993 a Petition for Advisory Opinion was received from Frederick A.
Wightman C.P.A., P.C., 1038 West Jericho Turnpike, Smithtown, New York 11787.
The issue raised by Petitioner, Frederick A. Wightman C.P.A., P.C., is whether the service
of providing information regarding internal controls relating to cash register operators is subject to
the sales tax imposed under Sections 1105(c)(1) or (c)(8) of the Tax Law.
Petitioner's client checks the internal controls of retail stores by observing the procedures
used by people operating cash registers when they ring-up sales and make change. Petitioner's client
then writes a report in regard to the internal controls based upon its observations and supplies it to
the store's management. If it detects fraud it does no enforcement or take any disciplinary action. It
does not provide any security or detective services.
Section 1105(c) imposes a tax upon:
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 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
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.

-2­
TSB-A-93 (32)S
Sales Tax
May 5, 1993
Petitioner's client's service of checking internal controls and procedures of retail stores
relating to cash register operators and submitting a report to the stores' management in regard to the
internal controls is not one of the services subjected to sales tax by Sections 1105(c)(1) or (c)(8) of
the Tax Law. However, it is noted that if Petitioner's client provides unannounced and undisclosed
investigative inspections of retail stores for a store owner to whom a report is provided or provides
the services of "fact finders", who pose as employees for the purposes of observing work
performances and reporting on these observations to a store owner or conduct surveillance of persons
for a store owner, such services would be protective and detective services subject to the sales tax
imposed by Section 1105(c)(8) of the Tax Law. New York State Department of Taxation and
Finance Publication 846(1/89), Sales Tax Information on Selected Services in New York City.

DATED: May 5, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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