When were a Texas firm's investigation services taxable based on where the work occurred and where the client was located?

Plain-English summary

The Comptroller classified the licensed investigation business as providing taxable security services under Rule 3.333.

Investigations conducted in Texas were taxable whether the client was in Texas or elsewhere. Investigations conducted outside Texas were taxable for a Texas client, but not for a client outside Texas.

Meals, hotels, telephone calls, airfare, and other expenses directly related to a taxable investigation were also taxable. The letter separately explained how state, city, transit, county, and special-district taxes were allocated under the local-tax system then in effect.

Common questions

Was Texas work for an out-of-state client taxable? Yes.

Was out-of-state work for a Texas client taxable? Yes.

When was out-of-state work not taxable? When both the investigation and the client were outside Texas.

Could related travel expenses be excluded from tax? No, when directly related to the taxable service.

Citations and references

• 34 Tex. Admin. Code Rule 3.333(g) (Security Services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0979C01

Original ruling text

February 12, 1990

Dear **:

Thank you for your inquiry regarding sales and use tax applicable
to your client's, *, business in Texas.

As I understand from your client's letter, your client performs
investigations for the tobacco industry and created an office in
Houston to handle investigations in the Southeast. Your client is
licensed with the Texas Board of Private Investigators and Private
Security Agencies.

Based on the information presented, it appears that your client is
providing a service subject to sales and use tax. Please see Rule
3.333 - Security Services. Investigations conducted in Texas for
a Texas or out-of-state client are subject to Texas tax.
Investigations conducted outside Texas for a Texas client are
subject to Texas tax. Investigations conducted outside Texas for
clients outside Texas are not subject to Texas tax.

Charges for services or expenses directly related to and incurred
while providing the taxable service are taxable. Examples would
be charges for meals, hotel rooms, telephone calls, or airline
tickets. Please refer to Section (g) of Rule 3.333 regarding
nontaxable unrelated services.

Since your client's place of business is in CITY A, your client
is required to collect the state sales tax and CITY A sales tax
on taxable transactions. The CITY A MTA sales tax is not due
if the service is provided outside the boundaries of the CITY A
MTA. If the service is provided within another MTA or CTD, within
a taxing county, or within a special purpose district, your
client would be required to collect and allocate the use tax for
the appropriate jurisdiction. Please note that the maximum amount
of tax due on a taxable transaction is 8%. There may be an
exception to the 8% cap if the voters of COUNTY L choose to impose
an additional 1/2% sales and use tax for COUNTY L Hospital District
in 1991.

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 additional information, you may
call me at 463-4666, or toll free at 1-800-252-5555, extension 3-4666.
You may write to Tax Correspondence

Sincerely,

Jo Ann Dieck
Tax Correspondence