I'm a Texas private investigation/security firm with clients and jobs both inside and outside Texas -- which of my investigation and security services are subject to Texas sales tax?

Subject

Oos Client — Investigation Performed Oos By Texas Firm

Plain-English summary

A licensed private investigative agency doing business in Texas asked the Comptroller to sort out which of its investigation, security, and training services are subject to Texas sales tax, given that its clients and the locations being investigated are sometimes in Texas, sometimes out of state, and sometimes in Mexico. The Comptroller answered ten specific fact patterns.

The core rule: it's about the object of the investigation and where the work/benefit lands, not where the client is headquartered. Several answers repeat the same theme -- detective and investigation services of corporate locations or premises located outside Texas are not taxable, even for a Texas-based client, if the investigation is unrelated to any Texas corporate location. Conversely, a due-diligence investigation of a business being acquired in Texas is taxable even though the client's principal offices are out of state, because the object of the investigation (the Texas business) is inside Texas.

Investigations performed inside Texas for out-of-state clients are routinely taxable, but there's a narrow carve-out: no Texas tax is due on investigative/security services performed inside Texas when both the object of the investigation and the purchaser are located outside Texas, provided (1) the results are delivered outside Texas, and (2) the customer derives no benefit from and makes no use of the services in Texas. If the customer takes delivery of the report (for example) in Texas, tax is due. Rule 3.333(d) independently makes tax due whenever the object of the investigation is located inside Texas.

Bodyguard/off-duty-officer work and training performed entirely outside Texas are not taxable. Providing off-duty police officers for bodyguard work in another state, and providing training services in Mexico City or another state for a Texas client, are both not subject to Texas tax.

Multi-state work needs an exemption certificate to avoid Texas tax. For the Louisiana law firm/California trust case example, if the investigative work is performed entirely outside Texas for an out-of-state customer, it's not taxable. But if work is performed in Texas, tax is due unless the purchaser furnishes an exemption certificate claiming multi-state benefit under Rule 3.333(o) ("Service benefit location - multistate customer").

Security seminars: tuition is exempt, materials are not. Tuition for a Texas security-training seminar is not taxable regardless of whether attendees are in-state or out-of-state, but any training materials sold to students are subject to sales tax; if materials are simply given away, the school operator must pay tax on them at purchase.

"Mystery shopping" is taxable. A bank hiring the firm to pose as a customer and check whether employees follow bank policy and sales procedures is not treated as an investigation, but the charge is still subject to Texas tax.

Security design work is tied to the location of the facility it serves. Design work done for a branch office/facility located in Texas is taxable as a "Private Security Consultant" service. If the facility is outside Texas, the customer can issue an exemption certificate claiming benefit of use outside Texas and take responsibility for any Texas tax that becomes due if the design is later used in Texas. The letter includes an editor's note that private security consulting was later removed from licensing requirements by 2019 legislation (SB 616, amending Occupations Code 1702.102, effective 9/1/2019) -- but clarifies that because this firm's services were performed by a licensed private investigator, the service remained taxable notwithstanding that change.

What this means for you

Texas investigation/security firms serving out-of-state clients

Look at where the object of the investigation is located and where the report is delivered/used -- not just where your client's offices are. Investigating a facility or matter located entirely outside Texas is generally not taxable, even for a Texas client, as long as it's unrelated to any Texas location. Investigating something located in Texas is taxable even if your client is out of state or in Mexico.

Firms performing work inside Texas for out-of-state or foreign clients

You can avoid Texas tax only if the object of the investigation is outside Texas, the purchaser is outside Texas, you deliver results outside Texas, and the customer doesn't use or benefit from the service in Texas. If the client takes delivery in Texas, tax is due regardless of the other facts.

Firms doing multi-state investigative work (e.g., work split between two other states for an out-of-state client)

Get an exemption certificate claiming multi-state benefit (Rule 3.333(o)) from the purchaser if any part of the work is performed in Texas; otherwise, if all the work is genuinely performed outside Texas for an out-of-state customer, no Texas tax applies.

Firms running security training seminars

Charge tax on training materials you sell to students (or pay tax yourself on materials you give away), but don't charge tax on seminar tuition.

Firms doing security design/consulting work tied to a specific facility

Tax follows the facility's location. Get an exemption certificate from the customer if the facility is outside Texas.

Common questions

Q: My Texas client hires me to investigate their own facility in California -- is that taxable?
A: No. Detective and investigation services of corporate locations or premises located outside Texas are not taxable if the investigation is unrelated to any investigation of corporate locations in Texas.

Q: An out-of-state company hires me to do due diligence on a Texas business it's planning to acquire -- taxable?
A: Yes, that charge is subject to Texas tax, because the object of the investigation (the Texas business) is located in Texas.

Q: A client in Mexico hires me to investigate something in Texas -- taxable?
A: Yes -- investigations conducted inside Texas for an out-of-state (or foreign) client are routinely subject to tax, and Rule 3.333(d) makes tax due whenever the object of the investigation is located inside Texas.

Q: Same Mexico-based client hires me for work performed outside Texas -- taxable?
A: No Texas tax is due on investigative/security services performed inside Texas when both the object of the investigation and the purchaser are outside Texas, if the results are delivered outside Texas and the customer gets no benefit from/makes no use of the service in Texas. (And if the work itself is performed outside Texas, that's outside the taxable event as well.)

Q: Do I owe tax on off-duty police officer "bodyguard" work performed in another state for an out-of-state client?
A: No, that is not subject to Texas sales tax.

Q: Is tuition for my in-Texas security training seminar taxable?
A: No, tuition charges are not subject to tax, whether attendees are from Texas or elsewhere. However, training materials sold to students are taxable, and if you give the materials away instead of selling them, you must pay tax on them when you purchase them.

Q: Is "mystery shopping" for a bank considered a nontaxable business consultation rather than a taxable investigation?
A: No -- even though it's not treated as an investigation (it's checking employee adherence to bank policy and sales procedures), the charge is still subject to Texas tax.

Q: Is security system design work for an out-of-state facility taxable?
A: Texas tax is due if the design work is performed in Texas, but the out-of-state customer may issue an exemption certificate claiming benefit of use outside Texas, taking responsibility for any Texas tax that becomes due if the design or equipment is later used in Texas.

Q: Does the 2019 law removing private security consultants from licensing requirements change any of this?
A: The letter's editor's note explains that SB 616 (amending Occupations Code 1702.102, effective 9/1/2019) removed private security consultants from license requirements, so private security consulting services are no longer automatically taxable as a security service on that basis alone. However, because this firm's services were performed by a licensed private investigator, the service remained taxable.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.333(d) (Texas tax is due if the object of the investigation is located inside Texas)
• 34 Tex. Admin. Code Rule 3.333(o) ("Service benefit location - multistate customer" exemption certificate)

Related legislative note (from the ruling's editor's note):

• SB 616 (Occupations Code 1702.102 amendment, effective 09/01/2019) removed private security consultants from licensing requirements, though the ruling clarifies this firm's services remained taxable because performed by a licensed private investigator.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9701201L

Original ruling text

January 9, 1997

Dear ***:

Thank you for your recent letter which is restated in part with responses

below.

***. Is a licensed private investigative agency doing business in

Texas. We are unclear on what is taxable. Would you please respond to the

following questions in connection with Texas sales tax.

TEXAS SALES TAX QUESTIONS

1. Out-of-state client engages *** to provide active off-duty police

officers for "bodyguard" work in a state outside Texas.

Response: Not subject to Texas sales tax.

2. Client whose principal offices are in Texas, engages *** to

provide investigative services in California for their company facility in

California.

Response: Detective and investigation services of corporate locations or

premises located outside Texas are not taxable if the investigation is

unrelated to any investigation of corporate locations in Texas.

3. Client whose principal offices are out-of-state engages *** to

conduct a due diligence investigation of a business they are planning to

acquire in Texas.

Response: The charge is subject to Texas tax.

4. Texas client engages *** to provide training services in Mexico

City or out-of-state.

Response: Not subject to Texas tax.

5. Client in Mexico hires *** to conduct an investigation in Texas.

Same client -- hires *** outside Texas.

Response: Investigations conducted inside Texas for an out-of-state client are

routinely subject to tax. However, no Texas tax is due on investigative

security services conducted inside Texas when the object of the investigation

and the purchaser both are located outside Texas, if:

1. The service provider delivers the results of the investigation outside

Texas, and

2. The customer derives no benefit from and makes no use of the investigative

services in Texas.

Texas sales tax is due if the customer takes delivery of the service (for

example, the written report of the investigator) in Texas. Also, Rule 3.333 (d)

specifies that Texas sales tax is due if the object of the investigation is

located inside Texas.

Detective and investigation services of corporate locations or premises located

outside Texas are not taxable if the investigation is unrelated to any

investigation of corporate locations in Texas.

6. Law firm in Louisiana, representing an individual who resides in Texas,

hires *** to provide investigative support concerning a trust case in

California. Work is done in both states.

Response: I am not sure if the work is being performed completely outside

Texas or not. Assuming the services are performed outside Texas for an

out-of-state customer, the charges are not subject to Texas tax. Texas tax is

due if the work is performed in Texas unless the purchaser gives you an

exemption certificate claiming multi-state benefit. Please refer to subsection

(o), "Service benefit location - multistate customer" of the enclosed rule

3.333.

7. Security training provided for both in state and out-of-state clients at a

seminar type meeting.

Response: The tuition charges for Texas seminars are not subject to tax;

however, any training materials sold to students will be subject to sales tax.

If the materials are given to the students, the operator of the school must pay

tax at the time of purchase.

8. Security design work is provided for an out-of-state firm with a branch

office in Texas. The work is in connection with the Texas facility. What if the

work is for a facility outside Texas.

Response: The design work itself constitutes a security service. Accordingly,

Texas tax is due on the design work done as a "Private Security Consultant" in

connection with the Texas facility. The customer may issue an exemption

certificate claiming benefit of use outside Texas if the facility is outside

Texas, and take responsibility for any Texas tax that may become due if the

design is used in Texas. I am enclosing an exemption certificate for your

possible use. [Editor's note: Services provided by private security consultants are no longer

considered a taxable security service. SB 616 (section 5.028) amended the Occupation Code

1702.102 to remove these entities from the license requirements. Legislative Session, effective 09/01/2019.

However, because these services are performed by a licensed private investigator, the service remains taxable.]

9. In state bank hires *** to provide "mystery shopping" service.

This is not an investigation but rather a means of checking whether their

employees are adhering to bank policy and selling procedures.

Response: Subject to Texas tax.

10. Private individual in Colorado asks *** to design a security and

CCTV system for her new home in Aspen. *** also consults in the

selection process of finding a qualified alarm vendor.

Response: Texas tax is due if the design work is performed in Texas. The

Colorado customer may issue an exemption certificate claiming benefit of use

outside Texas and take responsibility for any Texas tax that may become due if

the design or equipment is used in Texas. I am enclosing an exemption

certificate for your possible use. [Editor's note: See comment added to Response #8]

This opinion is rendered based on the facts presented. If there are additional

or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is

512/463-4680. You may also write to Tax Policy, Comptroller of Public

Accounts. My Internet address is .

Sincerely,

Al Van Allen

Tax Policy Division