A firm is licensed as both a private investigator and an independent insurance adjuster -- are its fees for insurance-adjusting work taxed as 'detective services,' the same as its private-investigator fees?

Subject

Is whether Petitioner must collect sales tax on receipts from fees charged to clients for Petitioner's activities as an independent adjuster.

What this means for you

New York taxes "protective and detective services," which includes services provided by detective agencies -- but the Tax Law doesn't itself define "detective services." A firm licensed as BOTH a private investigator (under General Business Law Article 7) and an independent insurance adjuster (under Insurance Law Article 21) asked whether its adjusting fees were taxed the same as its investigator fees.

The Department relied on a 1994 appellate decision, Compass Adjusters and Investigators, Inc. v. Commissioner of Taxation and Finance, which held that the private-investigator licensing statute itself expressly excludes insurance adjusters from its definition -- and that tax statutes get construed narrowly, in favor of the taxpayer, when there's doubt. The court drew a functional line: a dual-licensed firm's status "depends entirely upon the nature of the activities they are performing at that time." When performing work that requires the private-investigator license, the firm is a private investigator and those fees are taxable. When performing work that requires the independent-adjuster license (investigating and adjusting insurance claims on behalf of an insurer, and duties incidental to that), the firm is acting as an adjuster and those fees are not subject to the detective-services tax -- even though some of the underlying tasks (interviews, surveillance) look similar either way.

Q&A

Q: We're licensed as both a private investigator and an independent insurance adjuster -- do we charge sales tax on everything?
A: No. Look at which license the specific activity requires. Work requiring your private-investigator license is taxable as a detective service. Work requiring your independent-adjuster license (investigating/adjusting claims for an insurer, and duties incidental to that) is not taxable, even if it involves similar investigative techniques.

Q: Why does insurance-adjusting escape the detective-services tax when it looks like investigative work?
A: Because the statute defining "private investigator" (General Business Law § 71) explicitly excludes the business of insurance adjusters, and the courts read the Tax Law's undefined "detective services" term through that same licensing framework -- adjusting work performed under an Insurance Law Article 21 license just isn't "detective services" for sales tax purposes.

Q: Does this exemption depend on which license we actually hold, or just what we're doing at the moment?
A: The controlling factor is the nature of the activity being performed at the time (which license it requires) -- a firm holding both licenses must track and characterize its work activity-by-activity, not treat itself as uniformly taxable or exempt based on its overall business identity.

Citations

• Tax Law § 1105(c)(8) -- taxes protective and detective services, including detective agencies.
• General Business Law Article 7, § 70 -- licenses private investigators and watch/guard/patrol agencies; excludes insurance adjusters from its scope.
• General Business Law Article 7, § 71 -- defines "private investigator," expressly excluding persons in the business of insurance adjusters.
• Insurance Law § 2101(g) -- defines "independent adjuster" as one acting on an insurer's behalf investigating and adjusting claims.
• Compass Adjusters and Investigators, Inc. v. Commissioner of Taxation and Finance, 197 AD2d 38, 610 NYS2d 625 -- holds that "detective services" under Tax Law § 1105(c)(8) doesn't include work requiring an Insurance Law adjuster's license; a dual-licensed firm's taxable status turns on which license the specific activity requires.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (24)S
Sales Tax
June 29, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940811D

On August 11, 1994 a Petition for Advisory Opinion was received from Stephen J. Boyko,
Inc., 811 Old Country Road, Plainview, New York 11803.
The issue raised by Petitioner, Stephen J. Boyko, Inc. is whether Petitioner must collect sales
tax on receipts from fees charged to clients for Petitioner's activities as an independent adjuster.
Petitioner's business activities consist of services which are performed by private
investigators and services which are performed by independent adjusters. Petitioner is licensed as
a private investigator under Article 7 of the General Business Law and as an independent adjuster
under Article 21 of the Insurance Law.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--...there is hereby imposed and there shall be paid a tax ...
upon:
(c)
The receipts from every retail sale, except for resale, of the following
services:
(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 performance of such services by a port watchman
licensed by the waterfront commission of New York harbor, whether or not tangible
property is transferred in conjunction therewith.
Article 7 of the General Business Law states, in part:
§70. Licenses

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

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Sales Tax
June 29, 1995

3. ...Nothing contained in this section shall be deemed to include the business of
   adjusters for insurance companies, nor public adjusters licensed by the superintendent
   of insurance under the insurance law of this state....
   §71. Definitions
4. "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 any official, member or
   representative thereof; or with reference to any person or persons seeking employment in the
   place of any person or persons who have quit work by reason of any strike; 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. The
   foregoing shall not be deemed to include ... persons engaged in the business of adjusters for
   insurance companies nor public adjusters licensed by the superintendent of insurance under
   the insurance law of this state.
   Article 21 of the Insurance Law states, in part:
   §2101. Definitions
   (g) In this article, "adjuster" means any "independent adjuster" or "public adjuster"
   as defined below:
   (1) The term "independent adjuster" means any person, firm, association or
   corporation who, or which, for money, commission or any other thing of value, acts
   in this state on behalf of an insurer in the work of investigating and adjusting claims
   arising under insurance contracts issued by such insurer and who performs such
   duties required by such insurer as are incidental to such claims and also includes any
   person who for compensation or anything of value investigates and adjusts claims on
   behalf of any independent adjuster....

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TSB-A-95 (24)S
Sales Tax
June 29, 1995
In Compass Adjusters and Investigators Inc. v. Commissioner of Taxation and Finance of
the State of New York, 610 NYS2d 625, 197 AD2d 38, the court stated that:
...among the detective and protective services covered by Tax Law § 1105(c)(8) are
those provided by detective agencies, but the Tax Law contains no definition of
detective services or detective agency. ... That broad definition can be found in
General Business Law article 70, which regulates private investigators and certain
other agencies (see, General Business Law § 71 [1]). Expressly excluded from the
broad definition of private investigator, however, are persons engaged in the business
of adjusters for insurance companies and public adjusters licensed under the
Insurance Law (id). Among those regulated by Insurance Law article 21 are
adjusters. An adjuster is defined as any independent adjuster or public adjuster and
an independent adjuster is defined as one who acts "on behalf of an insurer in the
work of investigating and adjusting claims arising under insurance contracts issued
by such insurer and who performs such duties required by such insurer as are
incidental to such claims" (Insurance Law § 2101[g][1]).
Based upon the foregoing statutory scheme, and considering the general rule that tax
statutes are to be strictly construed with any doubt resolved in favor of the taxpayer
... we conclude that the term protective and detective services contained in Tax Law
§ 1105(c)(8) does not include those services which cannot be performed without the
license required by Insurance Law §2101(a)(1). ... Plaintiffs are licensed private
investigators and licensed independent adjusters. Their status at any given time
depends entirely upon the nature of the activities they are performing at that time.
When they are performing activities that require a license pursuant to the provisions
of General Business Law article 70, plaintiffs are acting as private investigators for
which no independent adjuster license is required, and they concede that the fees they
charge for those detective services are subject to the sales tax under Tax Law §
1105(c)(8). When plaintiffs are performing activities that require a license pursuant
to the provisions of Insurance Law article 21, they are acting as independent
adjusters, for which no private investigator's license is required, and the fees charged
for those services are not subject to the sales tax.
In the instant matter, Petitioner is licensed as a private investigator under Article 7 of the
New York State General Business Law and as an independent adjuster under Article 21 of the New
York State Insurance Law. Based on the court's decision in Compass Adjusters and Investigators
Inc. v. Comn of Taxation and Finance of the State of New York, 610 NYS2d 625, 197 AD2d 38,
whenever Petitioner performs activities requiring a license under the provisions of Insurance Law
article 21, Petitioner will be considered to be performing services as an independent adjuster and the
receipts from fees charged to clients for such activities will not be subject to the tax imposed under
Section 1105(c)(8) of the Tax Law. Such activities consist of the work of investigating and adjusting
claims on behalf of an insurance company arising from insurance contracts issued by such insurance
company and performing such duties required by the insurer as are incidental to such claims.
However, when Petitioner performs activities requiring a license under the provisions of General

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TSB-A-95 (24)S
Sales Tax
June 29, 1995

Business Law article 7, Petitioner will be considered to be performing services as a private
investigator and the receipts from those activities will be subject to the tax imposed under Section
1105(c)(8) of the Tax Law.

DATED: June 29, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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