My company leases electronic radio tags that customers attach to expensive, theft-prone items, and I track those items by radio frequency within a service area if they're stolen. Am I subject to Texas telecommunications utility assessments, and do I owe sales tax on my tracking service?

Plain-English summary

A security company leased electronic radio tags to customers (including banks and jewelry stores) who attached the tags to expensive, theft-prone items. The company set up antennas around a defined service area (like a county) and could track a tagged item within that area if it was stolen, helping recover it for the customer. Since the tags used radio frequency, the company asked whether it was subject to Texas telecommunications utility laws and had to file Texas Telecommunications Assessment Reports.

On the telecommunications question: No. Both the Universal Service Fund and Telecommunications Infrastructure Fund (TIF) assessments are made against carriers, not against this kind of tracking service — the Comptroller said this company's service was not, to their knowledge, subject to the TIF assessment.

On the sales tax question: This is where it gets more involved. The company's tracking service might be a taxable security service. Under Rule 3.333, a "security service" is defined as any service for which a license is required under the Private Investigators and Private Security Agencies Act (Tex. Civil Statutes Art. 4413(29bb), sec. 13 as it existed in 1999), covering investigations companies, guard companies, alarm systems companies, armored car companies, courier companies, guard dog companies, security services contractors, private security officers, detective services, and private investigators. The Comptroller told the company that its business of electronically tracking valuables to prevent theft or assist in recovering stolen items may require a license from the (then-named) Board of Private Investigators and Private Security Agencies — and if that license is required, charges for the tracking service are subject to Texas sales tax.

What this means for you

Asset-tracking, anti-theft, and recovery-service companies

Whether your tracking/recovery service is taxable turns on whether your specific service requires licensing under Texas private-investigator/security-agency law — not on the technology (radio frequency, GPS, etc.) you use to provide it. Confirm your licensing status with the state's regulatory board for private investigators and security agencies, since that answer drives the sales tax answer.

Radio-frequency or telecom-adjacent service providers worried about utility assessments

Providing a radio-frequency-based tracking service doesn't by itself make you a telecommunications carrier subject to Universal Service Fund or TIF assessments — those apply to carriers, a different regulatory category.

Accountants and tax professionals advising security or asset-protection businesses

Watch the STAR currency note on this one: a 2019 law (SB 616) removed private security consultants and guard dog companies specifically from the licensing requirement that Rule 3.333 is built on, meaning services from those two specific business types are no longer automatically taxable security services on licensing grounds. An electronic tracking/recovery service (like the one in this letter) isn't one of those two carved-out categories, so this letter's reasoning likely still applies to it — but verify current licensing requirements before relying on the 1999 analysis for any adjacent business type.

Common questions

Q: Is an electronic item-tracking service subject to Texas telecommunications utility assessments?
A: No — those assessments (Universal Service Fund, TIF) apply to carriers, not to this kind of tracking service.

Q: Is the tracking service itself taxable?
A: It may be, as a security service under Rule 3.333 — if the service requires a license under the Private Investigators and Private Security Agencies Act, charges for it are subject to sales tax.

Q: Does the 2019 SB 616 change affect this letter's conclusion?
A: Only for private security consultants and guard dog companies specifically, which that law removed from the licensing requirement. An electronic tracking/recovery company is a different business type, so this letter's core reasoning likely still applies, but licensing requirements should be re-verified for your specific service today.

Q: Can I rely on this letter for my own tracking or security business?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.333 (Security Services)
• Tex. Civil Statutes Article 4413(29bb), Private Investigators and Private Security Agencies Act, sec. 13 (1999 licensing definition; since amended by SB 616, 86th Legislative Session, effective 09/01/2019, to remove private security consultants and guard dog companies from the licensing requirement)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9902266L

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.

February 11, 1999

Dear **:

This is in response to your request for a ruling on the following fact
situation.

You currently operate a security company named SYSTEM, Inc. (FEID: **).
The company is in the business of providing tracking service for a number of
industries including banks and jewelry store.

You set up antennas around a specific area like a county (service area). You
then lease electronic radio tags to our customers who are located in the
service area. The tags are attached to expensive items that are prone to theft.
If the item is stolen, you can track the merchandise within the service area
for your customer. Since your tags uses radio frequency, you asked if your
company is subject to the Texas telecommunication utilities laws and have to
file the Texas Telecommunications Assessment Reports for Telecommunications
Utilities.

Response: Both the Universal Service Fund and Telecommunications Infrastructure
Fund (TIF) assessments are made against the carrier and not directly against
the rate payers. To my knowledge, the services that you provide are not subject
to the TIF assessment.

However, your company may be providing taxable security services. Charges for
providing security service to property or persons located in Texas are subject
to Texas sales tax. Texas Tax Rule 3.333 - Security Services, defines a
security service as:

... 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 company's service of providing electronic tracking of valuables
to prevent theft or assist in recovery of stolen valuables may require that
your company obtain a license from the Board of Private Investigators and
Private Security Agencies. If your company 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

512/463-5545

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