Could a security company exclude separately stated insurance, patrol-vehicle, polygraph, or administrative costs from its taxable service charge?

Plain-English summary

A security company separately rebilled site-specific officer insurance premiums, a patrol-vehicle lease, third-party polygraph tests, and a 7%–10% administrative charge.

The Comptroller said all of those costs were directly related to providing taxable security services and remained in the taxable total charge, whether separately itemized or billed as one lump sum.

A polygraph examination performed separate and apart from a security service was not taxable.

What this means for you

Separately stating an internal cost or pass-through did not remove it from the security-service tax base under the 1988 letter. The standalone nature of a polygraph service changed its treatment.

Common questions

Were rebilled officer-insurance premiums taxable? Yes, as part of the security-service charge.

Was the patrol-vehicle lease cost taxable when rebilled? Yes.

Were polygraph costs taxable inside the security engagement? Yes.

Was a standalone polygraph examination taxable? No.

Citations and references

The letter did not cite a rule or statute by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8803L0878E14

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 28, 1988

Dear ***:

Thank you for your recent letter regarding Security Services. Each of
the
cost breakdown categories you mentioned is restated with response below.

1. Non-Taxable Insurance premiums paid by our company for officers
   assigned to a specific site and rebilled at cost to that site. It was
   my understanding that these premiums should not be taxed when rebilled
   to a customer.

Response 1: Charges for services or expenses that are directly related
to and incurred while providing security services are taxable and may
not be separated from the tax base or total charge for the taxable ser-
vice. This is an expense you incur when providing security services.
Therefore, you must collect sales tax on the total charge for security
services billed to your customer, whether billed as separate line items
or as a lump-sum charge.

2. Monthly lease for a patrol vehicle on which a sales tax has already
   been paid. We were told that this need not be re-taxed by us.

Response 2: Same as for response 1.

3. Non-Taxable polygraph tests which are done by a third party, billed
   to us and rebilled to the client. As with #1, it was our understanding
   that these are not to be taxed as they are not part of our service and
   in themselves are not taxable.

Response 3: Same as for response 1. However, when a polygraph examina-
tion is done separate and apart from the provision of a security service,
the charge is not taxable.

4. An Administrative Charge (7%-l0%) which is added to items rebilled at
   our cost. Again, we understood that as this is not a part of our licensed
   security service, that it was not to be taxed.

Response 4: Same as for response 1.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call our toll-
free number 1-800-531-5441. The regular number is 512/463-4600. You may
write me at the Tax Policy Division.

Sincerely,
Al Van Allen
Tax Policy Division