A GPS vehicle-tracking company runs a test program with an insurance company, paying the cellular carrier directly and then allocating/re-billing the charges to the insurer and individual drivers at cost with no markup -- is this a nontaxable reimbursement, or does it make the tracking company a taxable cellular service reseller subject to security-service tax and the Telecommunications Infrastructure Fund (TIF) assessment?

Plain-English summary

A company manufactures and services a GPS-based vehicle tracking system that incorporates a cellular phone, used mainly for asset recovery but also capable of directional assistance. It ran a test program with an insurance company: the insurer solicited its customers to have the GPS/cellular tracker unit installed in their cars, with the cellular account held in the insurer's name, but the cellular carrier's invoice was actually mailed to and paid in full by the tracking company. The tracking company then divided that invoice into three parts -- charges it pays itself (monthly access fee, overnight download calls, install-time test calls), charges the insurance company pays, and charges the individual driver pays (all other calls, including automatic calls triggered by an "event": ignition without a correct passcode, the panic switch, a 20-second car alarm, or low battery) -- and re-billed each party at the exact original amount with no markup or discount. The company argued this was simply a reimbursement arrangement, not a resale of cellular service, after getting inconsistent answers from two separate phone calls to the Comptroller's office.

The Comptroller's answer reframed the question: the underlying service itself -- not just the cellular billing -- is what's actually taxable. Tax Code § 151.0075 defines "Security Service" as one requiring a license under the Private Investigators and Private Security Agencies Act, and doing "electronic tracking of the location of any individual or motor vehicle" specifically requires licensing as an Investigations Company under that Act. So the company's core offering to the insurance company is a taxable SECURITY SERVICE. Because the cellular telecommunications service is integral to performing that security service, the company has a genuine choice in how to treat it: (1) purchase the cellular service FOR RESALE, in which case it must collect sales tax and remit the Telecommunications Infrastructure Fund (TIF) assessment on the cellular charges it bills to the insurance company and insured individuals, or (2) continue paying sales tax itself on its own cellular purchases and bill the others for their usage as a separately stated, clearly labeled "telecommunications reimbursement charge" rather than a resale.

Currency alert: the Telecommunications Infrastructure Fund (TIF) assessment discussed in option (1) was repealed effective September 1, 2008 (House Bill 735, 80th Legislature) -- that specific remittance obligation is now obsolete, though the letter's core holding (that this GPS/monitoring service is a taxable security service, and the two available approaches to billing the integral cellular component) is unaffected.

What this means for you

GPS tracking, vehicle telematics, and vehicle-monitoring companies

If your service involves electronically tracking a vehicle's or individual's location for a client, expect it to be classified as a taxable SECURITY SERVICE requiring Investigations Company licensing under Texas law -- regardless of how you structure the cellular billing underneath it. You then choose between reselling the cellular service (collect tax on it) or treating your cellular pass-through as a reimbursement (pay tax yourself, bill others a clearly labeled reimbursement charge).

Insurance companies running usage-based or telematics test programs

Understand that your vendor's tracking/monitoring service is likely a taxable security service on its own terms -- the cellular cost-allocation mechanics are a secondary question about who bears sales tax on the phone service, not about whether the core monitoring service itself is taxable.

Accountants and tax professionals

This letter shows the Comptroller declining to accept a taxpayer's own "it's just a reimbursement" framing at face value -- instead identifying the actual taxable service (security/tracking) first, then addressing the integral telecom component separately with two compliant options. Also flag the TIF portion as obsolete for any client relying on this letter today.

Common questions

Q: Is a GPS vehicle-tracking/monitoring service a taxable security service in Texas?
A: Yes, per this letter -- electronic tracking of a vehicle's or individual's location requires Investigations Company licensing, making the service a taxable "Security Service" under § 151.0075.

Q: Can a tracking company just call its cellular billing pass-through a "reimbursement" to avoid collecting tax on it?
A: It can, per this letter, but only if it separately states and clearly labels the charge as a telecommunications reimbursement AND continues paying sales tax itself on its own cellular purchases -- the alternative is to resell the cellular service and collect tax on it instead.

Q: Does the TIF assessment mentioned in this 1997 letter still apply?
A: No -- it was repealed effective September 1, 2008 (House Bill 735, 80th Legislature); that specific piece of this letter is now obsolete.

Citations and references

Statutes:

• Tex. Tax Code § 151.0075 (definition of Security Service, referencing the 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/9706571L

Original ruling text

June 17, 1997

Dear ***:

Thank you for your recent emails which are restated in part with response
below.

My question is: "Is my company a cellular service provider?"

My company, CORPORATION X., manufactures and services a vehicle tracking system
(GPS technology) which incorporates the use of a cellular phone.

CORPORATION X has created a test program for the trackers with an insurance
company. The insurance co. asks its customers to participate in this program,
which requires that a cellular phone be installed in their cars. The cellular
account and all cellular phones are in the name of the insurance company.

The cellular service provider, *** Cellular, bills the insurance
company, but the bill is sent to CORPORATION X and is paid in full by
CORPORATION X. The bill is then analyzed and divided into 3 categories: charges
paid by CORPORATION X, charges paid by the insurance co., and charges paid by
the insurance customer. After categorizing who should pay which charges,
invoices are mailed to the insurance company and to the individual insurance
customers for only the amounts that ***** Cellular has charged. Invoice
payments are made payable to CORPORATION X. However, there is no mark-up or
discount of the charges by CORPORATION X.

We have interpreted this process as a reimbursement, not as a resale of
cellular service. I have called the Comptroller's office twice and got a
different answer each time.

Is CORPORATION X a cellular service reseller?

Note: We discussed this by telephone on July 15, 1997 and I requested
additional information. Your email response is restated below.

I am sending this e-mail as you requested during our telephone conversation the
morning of July 15, 1997. The issue is whether CORPORATION X is reselling
cellular service and is, therefore, required to collect Telecommunications
Infrastructure Fund and sales & use taxes for cellular service used in a test
program.

CORPORATION X manufactures and services a product called the ***,
which is a GPS tracking system. This system consists of a GPS tracking unit
and a cellular phone which are permanently installed in the customer's vehicle.
The system is used mainly for asset recovery, but because of the cellular
phone utilized by the unit, other services, such as, directional assistance can
also be provided. The cellular phone is used by the Tracker to call our
monitoring center, called the *****, during an event. (An event is
defined later in this letter.) The cellular phone may also be used normally by
the individual customer, if it is not in use by the Tracker.

CORPORATION X is currently working with *** Insurance to gather
statistical driving habits information, such as date, time of day, location,
and speed. ** has solicited its customers to participate in this
program. The cellular service is provided by * Cellular. The
* Cellular account is under the name of * Insurance,
but the invoice is mailed to CORPORATION X and is paid in full by CORPORATION
X. CORPORATION X then divides the invoice into three parts: charges paid by
CORPORATION X, charges paid by **** Insurance, and charges paid by the
individual. Below is an excerpt from a letter that CORPORATION X sent to the
individual insurance customers which may better explain how the charges are
allocated to each party.

"The monthly access fee shown on your *** Cellular summary is paid
for by ** Insurance. This credit is displayed on your CORPORATION X
invoice. Also credited are incoming calls made to your unit for downloading
information. These download calls are typically made between the hours of
midnight and 6 a.m. CORPORATION X (also) pays for any test calls made from
your phone at the time of installation. You are responsible for all other
phone calls made to or from your cellular phone. Included are calls made to
the *, whether made manually by the driver, or made automatically
by the **** when triggered by an event.

An event occurs and automatically calls the *** when:

• the ignition is turned on, but no passcode is entered, entered
  incorrectly or not entered in the time allotted
• the panic switch is pressed
• the car alarm is activated for 20 consecutive seconds
• the car battery falls below 9 volts

We provide a copy of the *** Cellular detailed bill for your
information only. The CORPORATION X invoice lists the total amount of the
** Cellular bill and then lists the deductions for the amounts paid
by CORPORATION X and by * Insurance. Your total is at the bottom
of the CORPORATION X invoice. We have marked the individual calls that you are
not being charged for on the **** Cellular detail billing..."

In our judgment, this allocation and billing process is a request for
reimbursement and not a resale of cellular services, because 1) the amount
billed to each party does not change from the original amount billed by
***Cellular; and 2) some of the charges are paid by CORPORATION X as
a consumer.

Response: The service you provide to the insurance company constitutes a
taxable security service. Tax Code Section 151.0075 defines Security Service
as "service for which a license is required under Section 13, Private
Investigators and Private Security Agencies Act (Article 4413(29bb), Vernon's
Texas Civil Statutes)."

Individuals and firms that do "....electronic tracking of the location of any
individual or motor vehicle..." are required to be licensed as Investigations
Companies under Section 13, Private Investigators and Private Security Agencies
Act.

The cellular telecommunications services you purchase to perform this service
for the insurance company is integral to the performance of that service and
may be purchased for resale. If you choose this option, you will be required
to collect sales tax and remit the Telecommunications Infrastructure Fund (TIF)
assessment on the charge you make to the insurance company and the insured
individuals on your charges to them for the cellular service they use in Texas.

In the alternative, you may continue to pay sales tax on your purchases of
cellular telephone service and consider the amount you bill the insurance
companies and insured individuals for cellular service they use as a
reimbursement. You should separately state such charges and clearly label them
as telecommunications reimbursement charges if you use this option.

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