A company runs credit and criminal background checks on prospective apartment tenants for property managers, faxing back the results for a fee. Is that service subject to Texas sales tax?

Plain-English summary

A company performs applicant/tenant screening for apartment managers: when an apartment manager has a prospective tenant, the company pulls credit, criminal, and other tenant-qualifying information, faxes it back to the manager, and charges a fee (the letter uses $30 as an example). The company asked whether this service is subject to Texas sales tax.

The Comptroller found the company was performing at least two potentially taxable services. First, furnishing credit information on a prospective tenant for a fee is squarely taxable as a "credit reporting service" under Tax Code Section 151.0034, which defines that service as "assembling or furnishing credit history or credit information relating to any person." Second, the criminal background check piece turns on Rule 3.333's definition of "security service," which in 1998 covered any service for which a license was required under the Private Investigators and Private Security Agencies Act — if the company needed such a license to run criminal background checks, that portion of the charge would also be taxable as a security service. The Comptroller couldn't rule on the undefined "other tenant qualifying information" without more detail, but flagged that gathered/compiled information made available to a specific industry segment for a fee can independently qualify as a taxable information service under Rule 3.342(b).

Important currency note: STAR's own attached alert on this letter flags that SB 616 (2019) removed private security consultants and guard dog companies from the licensing requirement that Rule 3.333 is built on — meaning the 1998 licensing-based analysis for the criminal-background-check portion of this ruling may no longer produce the same taxability answer today.

What this means for you

Tenant/applicant screening companies

Your credit-reporting component (pulling and furnishing credit history/information for a fee) is taxable as a credit reporting service under Tax Code Section 151.0034, regardless of any change to security-service licensing rules. The criminal-background-check component's taxability has historically turned on whether your business needed a private-investigator/security license — but check current Rule 3.333 and Occupations Code Chapter 1702 licensing requirements directly, since the 2019 SB 616 amendment changed that licensing landscape for private security consultants and guard dog companies.

Apartment managers and property management companies

The taxability of your screening vendor's charges depends on what exactly they're providing (credit report vs. criminal background vs. other information) — ask your vendor to break down invoices if you need to track which components carry sales tax.

Accountants and tax professionals

This letter is a good example of how Rule 3.333's security-service definition is licensing-dependent rather than activity-dependent — a service can stop being a taxable "security service" not because the activity changed, but because the underlying occupational licensing statute changed. Always re-verify current Occupations Code Chapter 1702 licensing requirements before relying on a pre-2019 taxability conclusion built on Rule 3.333.

Common questions

Q: Is a fee charged to apartment managers for pulling a prospective tenant's credit history taxable in Texas?
A: Yes — furnishing credit history or information for a fee is taxable as a credit reporting service under Tax Code Section 151.0034.

Q: Is a criminal background check on a prospective tenant automatically taxable the same way?
A: In 1998, it was taxable only if providing that check required a license under the Private Investigators and Private Security Agencies Act (making it a "security service" under Rule 3.333). Check current licensing law, since SB 616 (2019) changed which businesses need that license.

Q: What other tenant-qualifying information could be taxable?
A: The Comptroller didn't have enough detail to rule on "other tenant qualifying information" specifically, but noted that gathered/compiled information sold to a specific industry segment for a fee can independently be a taxable information service under Rule 3.342(b).

Q: Can I rely on this letter for my own screening business?
A: No. It's based on the specific facts presented, the opinion may change on different facts, and — separately — the underlying security-services licensing law it discusses has since changed per the 2019 alert above.

Citations and references

• Tex. Tax Code § 151.0034 (credit reporting service)
• 34 Tex. Admin. Code Rule 3.333(a) (security services, tied to the Private Investigators and Private Security Agencies Act licensing requirement)
• 34 Tex. Admin. Code Rule 3.342(b) (information services)
• SB 616 (86th Texas Legislature, 2019), amending Tex. Occupations Code § 1702.102, effective 2019-09-01 (currency alert, see disclaimer)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9804490L

Original ruling text

ALERT – Services provided by private security consultants and guard dog companies 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. Comptroller Rule 3.333 is based upon this Occupation Code. 86th Legislative Session, effective 09/01/2019.

April 30, 1998

Subject: Sales tax applicable to business type

Dear Mr. **:

This is in response to your request for a ruling regarding services provided by
your client.
I have restated the information and question that you provided below, followed
by my response.

Apartment managers contact your client when they have prospective tenants. The
apartment managers use your client to provide credit, criminal and other tenant
qualifying information to decide as to accept, decline or
accept-with-qualifications various tenants. Your client faxes the derived
information back to the apartment managers and then charges a, say, $30 fee for
this service.

Is this service subject to Texas sales tax?

Response: Your client is performing at least two taxable services. Texas Tax
Code 151.0034 defines "credit reporting service" as "assembling or furnishing
credit history or credit information relating to any person". (Emphasis
added.) Therefore, your client's furnishing of credit information on a
prospective tenant for a fee is taxable as a credit reporting service.

Subsection (a) of Rule 3.333 - Security Services, defines a security service to
mean "... any service for which a license is required under the Texas Civil
Statutes, Article 4413(29bb), Private Investigators and Private Security
Agencies Act, sec. 13, and includes any service provided within the scope of
the required license as an investigations company, guard company, alarm systems
company, armored car company, courier company, guard dog company, security
services contractor, private security officer, detective service, or private
investigator." Therefore, your client's service of providing a criminal
background check on a prospective tenant may require that your client obtain a
license from the Board of Private Investigators and Private Security Agencies.
If your client is required to be licensed, a charge for this service will be
subject to sales tax. You may call or write to this agency at:

Board of Private Investigators and Private Security Agencies
313 East Anderson Lane Suite 200
P.O. Box 13509
Austin, TX 78711

512/463-554579

I am not sure what "other tenant qualifying information" may entail, therefore
I can not address the taxability of this service. You may wish to submit
additional information on what other information your client provides and his
or her source for the information. I will point out that subsection (b) of
Rule 3.342 - Information Services, defines a taxable information service to
include "information which is gathered, maintained, or compiled and made
available by the provider of the information service to the public or to a
specific segment of industry for a consideration is subject to sales tax." I
am also enclosing an edited letter ruling that addresses a situation
similar to your client's situation, for your information.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also write to Tax Policy Division, Comptroller of Public
Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division