Which investigation, surveillance, expert-testimony, consultation, and process-serving charges were taxable under Texas's security-services rule?

Plain-English summary

Investigation services requiring a license under the cited private-security statute were taxable security services. Surveillance and investigation performed to locate or serve a person were taxable, although the process-serving charge itself was not.

Separately stated, reasonable expert-testimony charges were not taxable under the facts described. Pure consultation was also nontaxable, but became taxable when connected to a resulting sale of tangible property or taxable services.

Directly related expenses such as meals, calls, hotels, and airfare stayed in the taxable base. Out-of-state security services for a Texas client were taxable, while out-of-state work for an out-of-state client was not. A single bundled charge became fully taxable when the taxable portion exceeded 5%, unless reasonable nontaxable charges were separately stated.

Common questions

Was surveillance taxable? Yes.

Was process serving taxable? The process-serving charge was not, but related surveillance or investigation was taxable.

Could expert testimony be nontaxable? Yes, when separately stated and matching the facts described.

Were travel expenses excluded? No, when directly related to taxable security services.

Citations and references

• 34 Tex. Admin. Code Rule 3.333(a), (g)(2), and (g)(3) (Security Services)
• Texas Civil Statutes art. 4413(29bb), § 13 (Private Investigators and Private Security Agencies Act)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0979B09

Original ruling text

February 8, 1990

Dear ***:

We received your letter concerning the taxability of certain
investigation services. security services became taxable October
1, 1987. Security services means any service for which a license
is required under the Private Investigators and Private Security
Agencies Act, Section 13, Texas Civil Statutes, Article 4413(29bb).
Therefore, any investigation services within the scope of this act
are taxable. See subsection (a) of the enclosed Rule 3.333
relating to security services.

According to your letter, your company would not be required to
obtain a license for consultation and expert testimony services.
We understand expert testimony to be one investigator's testimony
or opinion of what another investigator either did, or should have
done, with regard to a case. If this is correct, then separately
stated reasonable charges for these services are not taxable.
However, if the consultant sells tangible personal property or
taxable services as a result of consultation with the client, the
consultation fee will also be taxable.

Charges for services or expenses directly related to and incurred
while providing the taxable service are taxable and may not be
separated to exclude these charges from the tax base. Examples
would be charges for meals, telephone calls, hotel rooms, or
airplane tickets. See subsection (g)(3) of Rule 3.333.

Security services performed outside Texas for the benefit of a
Texas client are taxable. However, security services performed
outside Texas for a client outside Texas are not taxable. You
should keep documentation to prove where the work was performed
and for whom.

If nontaxable services and taxable services are invoiced for a
single charge and the portion relating to taxable services
represents more than 5% of the total charge, then the total charge
is taxable. To avoid this you could separately state a reasonable
charge for the nontaxable items. See Rule 3.333(g)(2).

Investigation services performed for a client who wishes to
prosecute are taxable.

Charges for process serving are not taxable. However, charges for
surveillance and investigation in order to serve individuals,
corporations, etc., are taxable.

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

If you have any questions you may call or write Tax Correspondence.
You may call toll free 1-800-252-5555, or our regular number is
512/463-4600. My extension is 3-4658.

Sincerely,

Sherry Buckley
Tax Correspondence