Could a security company exclude a separately stated, dollar-for-dollar employee health-insurance reimbursement from its taxable service charge?

Plain-English summary

A security-guard company offered to buy health insurance for assigned guards and charged the customer an additional dollar-for-dollar reimbursement. The Comptroller said the fee was taxable as part of the total security-service charge. The company was buying insurance for its own guards, so the reimbursement was overhead included in the selling price—not a separate service sold to the customer.

Separately stating the fee or adding no markup did not remove it from the tax base. The letter contrasted a genuine unrelated service: a separately charged expert-witness appearance by a guard could be nontaxable because it was a distinct service, commonly offered on a stand-alone basis and unrelated to the taxable security service.

What this means for you

Pass-through labeling did not control. A reimbursed business cost remained taxable when it was part of providing the taxable service, while a genuinely distinct nontaxable service could be excluded.

Common questions

Was the health-insurance reimbursement taxable? Yes.

Did separate statement or no markup help? No.

What counted as an unrelated service in the example? A separate expert-witness appearance distinct from guarding services.

Citations and references

The letter did not cite a statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1097G10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

JOHN SHARP
Comptroller April 2, 1991

Dear *****:

Thank you for your recent letter. As I understand it, your
company provides security guards. You offer your customers
the following option: For an additional fee, your company
will purchase health insurance coverage for guards that you
provide. This additional fee is a dollar-for-dollar
reimbursement or "pass-through" charge.

Question: Is this an unrelated service, not subject to tax?

Answer: No, this fee is taxable as part of your total
charge for security services. You are not selling a
separate service to your customers. Rather, you are buying
insurance for some of your own guards, and requiring the
customers to reimburse you for the cost. This is no
different from any other item of overhead on which you base
the selling price of your taxable services. Whether or not
you separately state it or mark it up, it may not be
excluded from the tax base.

An unrelated service is a separate, nontaxable service that
you sell to a client, that is not related to the taxable
service you are selling at the same time. For example, if
you charged a separate fee for your security guards to
present live testimony as expert witnesses in court, you
would not be required to collect tax on this fee. Appearing
as an expert witness is not a taxable service, the service
is commonly provided on a stand-alone basis, and it is
identifiable and distinct from taxable security services.

This opinion is based on the facts presented. Different
facts, though similar, might load to different answers. If
you have further questions, feel free to write or call
1-800-252-5555. My direct extension is 3-3889.

Sincerely,
John Christian
Tax Administration