New York Advisory Opinion TSB-A-96(39)S: Is the fee a private child-support collection agency charges clients to secure a payment arrangement from delinquent parents subject to sales tax as a "detective service," given that the agency sometimes has to locate the delinquent parent first?

Plain-English summary

Child Support Services of NY, Inc. is a private business, not licensed as a private investigator, that collects delinquent child support for a 28% fee. For most parents it deals with, the whereabouts are already known -- they've simply refused or neglected to pay -- so the company just contacts them to arrange payment. For the smaller share who need to be found, the company calls directory assistance for phone numbers or asks the post office for forwarding addresses; it doesn't do more involved investigative work itself. The company asked whether its collection fee counts as a taxable "detective service" under Tax Law § 1105(c)(8), which covers protective and detective services including detective agencies.

The Department ruled the fee is not taxable. Section 1105(c)(8) taxes a specific, enumerated list of services (protective/alarm systems, detective agencies, armored car services, guard/patrol/watchman services); the substance of what Petitioner does -- collecting delinquent child support -- isn't on that list, even though locating a parent through directory assistance or a postal forwarding request has a flavor of detective work. The Department followed its own earlier opinion in Thomas J. Brennan, TSB-A-96(13)S, where a process server's fee wasn't taxed even though serving legal papers required locating defendants using phone books and public records -- performing some detective-like activities incidental to a non-enumerated core service doesn't convert the whole fee into a taxable one. The opinion draws one clear line, though: if the collection agency ever pays someone ELSE to search for a parent, that separate charge to the agency (as opposed to the agency's fee to its own client) would be taxable under § 1105(c)(8), since at that point the agency is buying an actual detective/locator service.

Common questions

Q: Why isn't locating a delinquent parent treated as a taxable detective service?
A: Tax Law § 1105(c)(8) only taxes an enumerated list of services -- protective/alarm systems, detective agencies, armored car and guard/patrol/watchman services. Child support collection isn't on that list, and doing some incidental locating (directory assistance, postal forwarding requests) as part of a non-enumerated collection service doesn't change what's really being sold, per the Department's own Brennan process-server precedent.

Q: Would the answer change if the company were a licensed private investigator?
A: The opinion doesn't say, but it specifically notes Petitioner is NOT licensed as a private investigator -- a licensed PI marketing itself as performing detective/investigative services could face a different analysis, since the substance of the service (not just the licensing status) drives the § 1105(c)(8) determination.

Q: What if the collection agency hires an outside locator or skip-tracer to find a parent?
A: That charge TO the agency would be taxable under § 1105(c)(8) as a purchase of detective services -- the exemption here covers the agency's collection fee to its own client, not a genuine detective service it buys from someone else.

Q: Can another collection agency rely on this exact result?
A: No. This advisory opinion binds the Department only as to Child Support Services of NY, Inc. and the specific facts described; another agency doing more extensive investigative work (rather than incidental directory-assistance lookups) should confirm its own fact pattern before assuming the same non-taxable treatment.

Citations and references

Statutes and regulations:

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

Prior rulings and cases referenced:

• Thomas J. Brennan, Advisory Opinion, Commissioner of Taxation and Finance, February 28, 1996, TSB-A-96(13)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_39s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (39)S
Sales Tax
July 2, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960411B

On April 11, 1996, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Child Support Services of NY, Inc., 5165 Broadway, Suite 101, Depew, NY 14043.
The issue raised by Petitioner, Child Support Services of NY, Inc., is whether the fee it will
charge to its clients to secure a payment arrangement from parents who are delinquent in child
support will be subject to State and local sales and compensating use taxes as a detective service.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a private business that will deal solely in the collection of delinquent child
support. For a fee of 28% of the child support collected, Petitioner will try to secure a satisfactory
payment arrangement from parents who are delinquent in their child support. Although a portion of
the delinquent parents will need to be located, the whereabouts of a vast majority of the parents is
known. These parents simply refused or neglected to pay their support. In most cases, Petitioner will
call directory assistance for telephone numbers or request forwarding address information from the
post office to locate the parents who are delinquent in their child support. Petitioner is not licensed
as a private investigator.
Section 1105(c) of the Tax Law imposes a tax upon the receipts from every 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 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.
In Thomas J. Brennan, Adv Op Comm T&F, February 28, 1996, TSB-A-96(13)S, the
Department concluded that although the petitioner's services as a process server required him to
perform certain activities in the nature of a detective service, the fees paid to the petitioner, who used
information contained in telephone books or public records to locate defendants in court actions,
were not subject to sales and use taxes.

-2­
TSB-A-96 (39)S
Sales Tax
July 2, 1996
Section 1105(c) of the Tax Law imposes tax on receipts from the sale of certain enumerated
services. The services performed by Petitioner consisting of securing payment arrangements from
parents who are delinquent in their child support and locating these parents by calling directory
assistance for telephone numbers, requesting forwarding address information from the post office
and other means, are not enumerated services subject to tax under Section 1105 of the Tax Law. The
fact that Petitioner's service may require Petitioner to perform certain activities that may be in the
nature of a detective service will not change the nature of Petitioner's service, which is collecting
delinquent child support. See Thomas J. Brennan, supra. Accordingly, the fees paid by Petitioner's
clients to secure payment arrangements from parents who are delinquent in child support will not
be subject to State and local sales and use taxes. It should be noted, however, that if Petitioner hires
someone to search for a parent, that charge to Petitioner would be subject to the tax imposed under
Section 1105(c)(8) of the Tax Law.

DATED: July 2, 1996

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

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