Is a caregiver referral agency's fee taxable, and are the pre-employment screening services it performs (criminal history, driving records, reference checks) subject to Texas sales tax?

Plain-English summary

The Comptroller responded to a firm that operates as an employment/referral service for caregivers of the elderly. The firm's process: it interviews caregivers, checks their references, runs a criminal background check, and checks driving records, then recommends a caregiver to the client. The client is the one who ultimately interviews, sets salary, and hires the caregiver, and pays the firm a fee for the referral.

The Comptroller drew a distinction between two different business models:

• Straightforward referral service: The fee the firm's customers pay for the referral service itself is not taxable.
• Pre-employment screening performed as a separate service: Some of the pre-employment tasks the firm performs — criminal conviction histories, driving records, and personal reference confirmations — may be taxable if, instead of the firm doing the interviewing, the customers actually interview caregivers and take the applications themselves, and then send that information to the firm for verification. If the firm operates this way, the Comptroller said it should check with the Texas Board of Private Investigators and Private Security Agencies (at the time located at 313 East Anderson Lane, Suite 200, Austin, TX) to determine whether it needs a license under the Private Investigators and Private Security Agencies Act.

If a license is required, the firm would need to collect sales tax on those services as security services, under (then-applicable) Comptroller Rule 3.333. The Comptroller noted the opinion is based on the facts presented and could change if the facts differ, and enclosed Rule 3.333 for reference.

What this means for you

Referral or staffing agencies for caregivers or similar personnel

If your business model is a pure referral service — you interview and screen candidates yourself and simply recommend them to a client who does the actual hiring — the fee you charge for that referral service is not subject to Texas sales tax.

Businesses performing background checks, driving record checks, or reference verification

If your role shifts from "referral agency" to "verification service" — meaning your customer does the interviewing and takes the applications, and sends you the information just to verify criminal history, driving records, or references — that verification work may be taxable. You should confirm with the Texas Board of Private Investigators and Private Security Agencies whether you need a license under the Private Investigators and Private Security Agencies Act. If a license is required, you must collect sales tax on those services as security services.

Accountants and tax professionals

The taxability turns on who is doing the interviewing/application-taking, not merely on what services (background checks, driving records, reference checks) are being performed. The same underlying screening tasks can be nontaxable (bundled into a referral fee where the agency itself interviews candidates) or taxable (as a security/investigative service where the client interviews and the firm only verifies), depending on that fact pattern and on whether the firm is required to be licensed as a private investigator/security agency.

Common questions

Q: Is the fee a caregiver referral agency charges its clients taxable?
A: No. The letter states the fee paid by customers for a referral service is not taxable.

Q: What can make the background-check and driving-record portions of the business taxable?
A: If customers actually interview caregivers and take the applications themselves, and then send that information to the firm to verify criminal conviction histories, driving records, or personal references, those verification services may be taxable.

Q: Does a caregiver referral firm always need a private investigator license?
A: Not necessarily — the letter instructs the firm to check with the Board of Private Investigators and Private Security Agencies to determine whether a license is required under the Private Investigators and Private Security Agencies Act, based on how the firm actually operates.

Q: If a license is required, what's the tax consequence?
A: The firm would need to collect sales tax on the services, under Rule 3.333 concerning security services.

Q: Could the answer change if the facts are different?
A: Yes. The letter explicitly states the opinion is based on the facts presented, and the opinion may change if there are additional or different facts.

Citations and references

Regulations:

• 34 Tex. Admin. Code Rule 3.333 (security services)

Referenced agency:

• Texas Board of Private Investigators and Private Security Agencies (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/9508L1365B06

Original ruling text

AUGUST 11, 1995

Dear **:

Thank you for your letter of July 28, 1995, concerning the
taxability of a caregiver referral service.

Your firm operates as an employment service for caregivers of
the elderly. You will interview caregivers, check their references,
do a criminal background check and check driving records. You will
then recommend the caregiver to the client who interviews, sets
salary, and hires the caregiver. The client pays you a fee for your
service. The fee paid by your customers for a referral service is
not taxable.

Some of the pre employment services you perform, such as
criminal conviction histories, driving records, and personal reference
confirmations, may be taxable if customers were to actually interview
and take the applications and then send the information to you for
verification. If your firm also operates in this manner, you should
check with the Board of Private Investigators.

Board of Private Investigators and Private Security Agencies
313 East Anderson Lane suite 200
P.O. Box 13509
Austin, TX 78711
Tele. 512/463-554579

If they determine that you need a license under the Private
Investigators and Private Security Agencies Act, you will need to
collect sales taxes on the services. Please see enclosed Rule 3.333
concerning security services.

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

You may call me toll free at 1-800-252-5555, ext. 5-0613.
The direct line is 512/475-0613. You may also write to Tax
Administration Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

NOTE: Previous Accession Number 9508404L