Is a dual-licensed insurance adjuster and private investigator's fee income taxable as a 'detective service,' or does it depend on which license the work required?

Plain-English summary

Carl J. Lalena is licensed both as an independent insurance adjuster (under the Insurance Law) and as a private investigator (under the General Business Law). Insurance companies hire him to investigate accidents, property damage, and injury claims, interview claimants and witnesses, negotiate settlements on the insurer's behalf, and -- in suspected fraud cases -- conduct surveillance. He sometimes has to testify in court about this work. Lalena asked whether his fees for these services are subject to New York sales tax.

New York taxes "protective and detective services" -- a category that includes detective agencies and investigators, but that a New York appellate court has held specifically excludes work that legally requires an independent adjuster's license under the Insurance Law, since insurance adjusting and private investigation are separately licensed, mutually exclusive categories of work. So the tax outcome turns entirely on which license a given assignment actually requires, not on who's doing the work or for whom. When Lalena is investigating and adjusting an insurance claim -- the work an independent adjuster's license covers -- his fees aren't taxable. When he's doing something that requires his private investigator's license instead, like surveillance work in a fraud investigation, his fees are taxable as a protective and detective service, even though the client is the same insurance company and the underlying claim is the same. Being called to testify in court about either kind of work doesn't change which category it falls into or whether the fee is taxed.

What this means for you

Insurance adjusters, investigators, and similarly dual-licensed professionals

Your tax treatment depends on which specific license your work requires for that particular task, not on your overall job title or who's paying you -- track which activities on each assignment are adjusting work versus investigative work, since they can be taxed differently even within the same case.

Insurance companies hiring adjusters who also do investigative work

Ask your vendor to separately itemize adjusting fees from investigative/surveillance fees on invoices, since only the investigative portion is subject to sales tax.

Accountants and tax professionals

This ruling applies the Appellate Division's Compass Adjusters holding directly -- protective and detective services under Tax Law § 1105(c)(8) exclude work that legally requires an Insurance Law Article 21 adjuster's license, so any client licensed under both Article 21 and General Business Law Article 7 needs an activity-by-activity taxability analysis, not a single blanket answer.

Common questions

Q: Are all fees earned by a licensed insurance adjuster exempt from sales tax?
A: Only for work that actually requires the adjuster's license -- investigating and adjusting insurance claims on an insurer's behalf. Work requiring a private investigator's license (like surveillance) is taxable even if performed by the same person for the same client.

Q: Does testifying in court about adjusting or investigative work change its tax treatment?
A: No -- court testimony is irrelevant to whether the underlying service is taxable.

Q: Why does licensing matter for sales tax purposes here?
A: A New York appellate court held that "protective and detective services" under Tax Law § 1105(c)(8) don't include work that legally requires an independent adjuster's license, since adjusting and private investigation are distinct, separately licensed categories of work.

Q: Does this ruling apply to my dual-licensed adjusting/investigation business?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your own activities on each assignment would need their own analysis.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_64s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(64)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970721A

On July 21, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Carl J. Lalena, c/o Always Available Claims
Services, Inc., 200 Cow Neck Road, Port Washington, NY 11050.
The issue raised by Petitioner, Carl J. Lalena, is whether he must collect
sales tax on receipts from fees charged to his clients for his services as an
independent adjuster and/or his services as a private investigator as described
below.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner’s business activities consist of rendering services as both an
independent insurance adjuster and as a private investigator. Petitioner is
licensed as an independent adjuster pursuant to Article 21 of the Insurance Law
and as a private investigator pursuant to Article 7 of the General Business Law.
Petitioner receives assignments from insurance companies concerning
various personal injury, product liability, property damage and insurance fraud
claims. The services provided by Petitioner include investigating the causes of
accidents, property damage or injuries, verifying and obtaining information by
interviewing claimants and insureds, evaluating and negotiating claim settlements
on the insurer’s behalf and, in insurance fraud cases, suspect video
surveillance. Petitioner may be called upon to appear in court and testify as
a witness concerning certain claims, and he questions whether this would have any
effect on the taxability of his services.
Applicable Law and Regulations
Section 1105 of the Tax Law imposes sales tax, in part, upon:
(c) The receipts from
following
services:

every

sale,

except

for

resale,

of

the

(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.

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TSB-A-97(64)S
Sales Tax

Section 1110(a)(C) of the Tax Law imposes compensating use tax on “any of
the services described in paragraphs (1), (7) and (8) of subdivision (c) of
section eleven hundred five.”
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 ....
   *

*

*

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; ... 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 with
   reference to the conduct, honesty, efficiency, loyalty or activities
   of employees, agents, contractors, and subcontractors; 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 New York State Insurance Law states, in part:
   § 2101. Definitions
   (g) In this article, “adjuster” means any “independent adjuster” or
   “public adjuster” as defined below:

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TSB-A-97(64)S
Sales Tax

(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....
(2) “Public adjuster” means any person, firm, association or
corporation who, or which, for money, commission or any other thing
of value, acts or aids in any manner on behalf of an insured in
negotiating for, or effecting, the settlement of a claim or claims
for loss or damage caused by, or resulting from, fire occurring in
this state, or who, or which, advertises for, or solicits employment
as an adjuster of such claims, and shall also include any person
who, for money, commission or any other thing of value, solicits,
investigates, or adjusts such claims on behalf of any such public
adjuster....
In Compass Adjusters and Investigators v. Commissioner of Taxation and
Finance of the State of New York (197 AD2d 38, 41-42) the court concluded 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. . . . the Department equated the terms to
investigative services and investigators, which we find appropriate.
In so doing, the Department noted that the term investigator is
broadly defined under New York statutes. That broad definition can
be found in General Business Law article 7, 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 (ibid.). Among those regulated by Insurance
Law article 21 are adjusters.
An adjuster is defined as any
independent adjuster or public adjuster....
Based upon the foregoing statutory scheme . . ., 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
§ 2102(a)(1).
(Emphasis added) . . . 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 7, plaintiffs are acting
as private investigators for which no independent adjuster license

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TSB-A-97(64)S
Sales Tax

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.
Opinion
Petitioner may be hired to perform services as either an independent
adjuster or as a private investigator. Based on the Appellate Division decision
in Compass Adjusters and Investigators, for purposes of State and local sales and
compensating use taxes, the services performed by Petitioner in these two
capacities have different taxable treatment.
When Petitioner performs activities requiring an independent adjuster
license issued under Article 21 of the Insurance Law, Petitioner’s services are
not subject to the taxes imposed under Sections 1105(c)(8) and 1110(a)(C) of the
Tax Law. Such activities are described in Section 2101(g)(1) of the Insurance
Law and consist, for example, 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 (see Compass Adjusters and Investigators, supra;
Stephen J. Boyko, Inc., Adv Op Comm T&F, June 29, 1995, TSB-A-95(24)S; Robert M.
Bridges, Adv Op Comm T&F, June 29,1995, TSB-A-95(25)S).
When Petitioner performs activities requiring a private investigator’s
license issued under Article 7 of the General Business Law, Petitioner’s
services are subject to the taxes imposed under Sections 1105(c)(8) and
1110(a)(C) of the Tax Law, including when performed for an insurance company.
Such services are described in Section 71(1) of the General Business Law and
would include, for example, surveillance activities (see Marvin Rosenthal, Adv
Op Comm T&F, January 24, 1997, TSB-A-97(2)S).
Although Petitioner may be called upon to provide testimony in court
concerning its activities both as a claims adjuster and/or as a private
investigator, such testimony is irrelevant for the purposes of determining the
taxability of services under Sections 1105(c)(8) and 1110(a)(C) of the Tax Law.

DATED: November 4, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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