What did the 1994 internal Comptroller memo say about whether prewiring a building for a burglar alarm system is taxable as a security service?

Subject

Burglar/Alarm Security System — Prewiring Building Only Vs. Prewiring As Part Of System Installation — License Requirements

Plain-English summary

This document is not a taxpayer-specific letter ruling — it's an internal November 22, 1994 email from Al Van Allen to Hayden Denham (both Comptroller Tax Policy staff), forwarding and endorsing a Legal Services memo from Chung Chu Cha, along with the underlying correspondence between Chung Chu Cha and Don Smith, Chief of the Hearings Division of the Texas Board of Private Investigators and Private Security Agencies.

The underlying issue involved an audited taxpayer: a licensed alarm systems company that both monitors and installs/repairs security equipment (and also installs intercoms, vacuums, and stereo systems). On some jobs the taxpayer only prewired a building under construction for a future alarm system ("prewires only"); on other jobs it installed the complete security system, including the prewiring. The taxpayer collected sales tax when it installed the whole system but did not collect tax on jobs where it only prewired. Because the taxpayer was a licensed security company, an audit assessed tax on the "prewire only" charges as well.

The Texas Tax Code defines a taxable "security service" as one for which a license is required under the Private Investigators and Private Security Agencies Act (Tex. Tax Code Ann. Sec. 151.0075), and the Comptroller's Rule 3.333 treated any activity performed within the scope of a required security license as taxable, regardless of whether the licensee merely wired or wired and installed. Chung Chu Cha's memo noted that the statutory definition of "alarm systems company" (selling, installing, servicing, monitoring, or responding to burglar alarm devices) does not specifically mention prewiring as a licensed activity, and that prior Comptroller determinations (microfiche 0868G09, 0849G06, and 0853G14) had found prewiring taxable, but it was unclear whether those determinations addressed "prewiring only" versus prewiring as part of a full installation.

To resolve the ambiguity, the Comptroller's Legal Services Division wrote to Don Smith at the Texas Board of Private Investigators and Private Security Agencies, asking whether a license is required to prewire only. Smith responded that no license is required for someone who "only installs wiring for the alarm system and do[es] not connect any burglar alarm components to the wiring." Based on that confirmation, the Tax Division concluded that "prewiring only" is not an activity within the scope of a required security license and therefore should not be taxable — analogous to non-taxable telecommunications wiring. Van Allen's email confirms this resolution and states that if the same installer is also contracted to install the alarms, the total charge (including the prewiring) is taxed as a security service. The email also directs that a prior determination, cited as "Fich[e] 8801L0849Go6," should be superseded and replaced with Chung Chu Cha's memo and Don Smith's letter.

What this means for you

If you install alarm/security system wiring

Under this 1994 internal guidance, labor charges to prewire a building for a future alarm system are not taxable as a security service if the installer performs only the wiring and does not connect any alarm components — because no Private Investigators/Private Security Agencies Act license is required for that limited activity, so it falls outside the statutory definition of a taxable "security service." However, if the same installer is also contracted to install the alarm system (i.e., connect the components), the entire charge — including the prewiring portion — becomes taxable as a security service.

If you are researching the taxability of security/alarm services generally

This document illustrates how the Comptroller distinguished "prewiring only" (non-taxable) from prewiring performed as part of a complete system installation (taxable), based on whether a security license would be required for the specific activity performed. It is not a letter ruling addressed to a particular taxpayer's request and was not issued through the STAR letter-ruling process, so it cannot be cited as reliance authority.

If you are looking for guidance on a specific sales/use tax question

This is an internal staff email and attached legal memo resolving an audit issue, not a taxpayer-requested letter ruling. Consult a licensed Texas tax professional, and verify whether this position remains current Comptroller policy, before relying on it.

Common questions

Q: Is this a binding letter ruling I can rely on?
A: No. It is an internal Comptroller email and attached Legal Services memo discussing the resolution of a specific audited taxpayer's case. It does not carry letter-ruling reliance protection under 34 Tex. Admin. Code Rules 3.1 and 3.10.

Q: Is prewiring a building for an alarm system taxable?
A: According to this 1994 internal guidance, labor to prewire only (with no alarm components connected) is not taxable, because performing that function alone does not require a license under the Private Investigators and Private Security Agencies Act, and the Tax Code defines "security service" by reference to services requiring that license.

Q: What if the same company also installs the alarm equipment?
A: Then the entire charge — prewiring included — is taxed as a security service, because installing the alarm components is an activity within the scope of the required security license.

Q: What happened to the taxpayer that was audited?
A: The memo describes a licensed alarm company that was audited and assessed tax on its "prewire only" charges. Based on the Board of Private Investigators' confirmation that prewiring alone doesn't require a license, the Tax Division proposed that those prewiring-only charges should not have been taxed. The document does not state the final audit outcome or any dollar amounts.

Q: Does this document cite any statute?
A: Yes, it cites Tex. Tax Code Ann. Sec. 151.0075 (Vernon 1992), which defines "security service," and refers to the Private Investigators and Private Security Agencies Act (then Art. 4413(29bb)) and Comptroller Sales Tax Rule 3.333 (November 13, 1989).

Citations and references

• Tex. Tax Code Ann. Sec. 151.0075 (Vernon 1992) — defines "security service" as a service for which a license is required under the Private Investigators and Private Security Agencies Act.
• Private Investigators and Private Security Agencies Act, Art. 4413(29bb), Sec. 2(5) — defines "alarm systems company."
• Comptroller Sales Tax Rule 3.333 (November 13, 1989) — defines "security services" to include any service within the scope of a required alarm-systems-company license.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9411676L

Original ruling text

From: Van Allen, Al
Date: Tue, Nov 22, 1994 4:56 PM
Subject: Prewiring for Alarms
To: Denham, Hayden

You gave me a memo from Chung Chu Cha of Legal Services regarding the tax
treatment of charges to prewire a building under construction for an alarm
system when the installer is licensed by the State Board of Private
Investigators. In this situation, the installer performs no other services
other than the installation.

Don Smith, Chief of Hearings Division for the State Board of Private
Investigators, says that this function does not require a license under their
act. Accordingly, sales tax is not due on the labor to perform this function.

I discussed this with Chung Chu and Rick Budd and explained that if the
installer were also contracted to install the alarms that the total charge
would be taxed as a security service. Fich 8801L0849Go6 should be superseded
and replaced with Chung Chu's memo to you and the back-up letter from Don
Smith. I will provide copies to Loreto.

FROM: Chung Chu Cha, Legal Services

SUBJECT: Sales tax consequences of the performance of security services

We currently have a case involving an alarm systems company (Taxpayer) that is
licensed under the Private Investigators and Private Security Agencies Act.
Taxpayer monitors security equipment and installs and/or repairs security
equipment in commercial and residential properties. It also installs
intercoms, vacuums and stereo systems in realty.

Taxpayer is a licensed security company that "prewires only" on certain jobs
and installs the whole security system including the prewiring, on other jobs.
It collects tax whenever it installs the entire security system but does not
collect tax if it "prewires only." As a result of its status as a licensed
security company and its decision not to collect tax on the jobs where it
"prewired only," Taxpayer was audited and set up for tax on the prewiring
services. At present, someone who "prewires only" does not need a security
license. The Tax Code defines security service as a service for which a
license is required under the Private Investigators and Private Security
Agencies Act.TEX.TAX CODE ANN.Sec. 151.0075 (Vernon 1992). That Act, Art.441
3(29bb), Sec. 2(5), defines alarm systems company as:

... any person that sells, installs, services, monitors, or responds to burglar
alarm signal devices, burglar alarms, television cameras, still cameras or any
other electrical, mechanical, or electronic device used:

(A) to prevent or detect burglary, theft, shoplifting, pilferage, or other
losses of that type;
(B) to prevent or detect intrusion; or
(C) primarily to detect or summon aid for other emergencies.

By this definition then, prewiring is not mentioned specifically as an activity
requiring a license in order to be performed. During the course of this
investigation, the Tax Division sent a letter to Mr. Don Smith, Chief of the
Hearings Division at the Texas Board of Private Investigators and Private
Security Agencies. As can be seen in the attached letter, the Board confirmed
that it does not require a license for services consisting of "prewiring only."

Our rule says that security services means any service that requires a license,
and includes any service provided within the scope of the required license as
an alarm systems company. Sales Tax Rule 3.333 (November 13, 1989). If a
company is licensed as a security service, it is apparently our position that
any activity it conducts as a security service company is taxable, regardless
of whether it merely wires or wires and installs. A review of our records on
this issue reveals that we have not considered the tax consequences for a
licensed security company when it "prewires only." Attached to this memo are
microfiche numbers 0868G09, 0849G06, & 0853G1 4 which say that prewiring is
taxable. However, it's not clear whether we were addressing "prewiring only" or
prewiring as part of a total system installation.

We feel that if a license is not required for "prewiring only," then it's not
included in the scope of the required license and therefore, should not be
taxable. However, if the prewiring is performed along with the final
installation of the security system, then it is included in the scope of the
license and taxable.

The Tax Division proposes that when a licensed security company "prewires only"
and does not install the whole security system, the prewiring not be taxed
because it is not a function for which a license is required. The situation is
akin to wiring in telecommunications, which is not taxable. Please give me
your comments on our proposed position. Thank you.

October 19, 1994

Ms. Chung Chu Cha, Hearings Attorney
Legal Services Division
Comptroller of Public Accounts
State of Texas
P.0. Box 13528
Austin, TX 78711-3528

Dear Ms. Cha:

In response to your letter of October 14, 1994, concerning prewiring of burglar
alarms, please be advised that we do not require an individual to have a
burglar alarm license if they only install wiring for the alarm system and do
not connect any burglar alarm components to the wiring.

Sincerely,

Don C. Smith
Chief, Hearings Division

October 14, 1994

Mr. Don Smith, Hearings Officer
Texas Board of Private Investigators and Private Security Agencies 313 East
Anderson Lane, Suite 200 Austin, Texas 78752

RE; Licensing requirement for prewiring under the Private Investigators and
Private Security Agencies Act.

Dear Mr. Smith:

As I mentioned to you in our telephone conversation yesterday, I am trying to
determine the sales tax consequences of the performance of security services.
Specifically, the Comptroller's concern is with an individual or organization
that prewires only.

1. Is a license under the Private Investigators and Private Security Agencies
   Act required of a person or company in Texas that prewires only?

2. If not, does it matter whether the unlicensed person or company performs
   the prewiring under the supervision of a licensed person or organization?

3. Does the Board of Private Investigators and Private Security Agencies have
   any rules, literature, and/or other written material explainIng or interpreting
   the licensing requirement for pre-wiring that can be made available to the
   Comptroller's Office?

Your prompt attention to this important issue will be appreciated greatly.

Sincerely,

Chung Chu Cha
Hearings Attorney
Legal Services Division