Were process-serving and skip-trace charges subject to Florida sales tax when billed to law-firm clients?

Plain-English summary

The Florida Department of Revenue concluded that freestanding process-serving charges were not subject to sales tax, while skip-trace and locate services were taxable investigative services.

Skip tracing involved collecting and analyzing information to locate a person and was taxable regardless of whether a licensed detective agency or another person performed it. Process service remained nontaxable when freestanding or separately stated.

When one provider billed both services, the taxable and nontaxable amounts had to be separately stated. Otherwise, the entire combined transaction became taxable.

What this means for you

Process servers and investigation firms

Separate service-of-process charges from skip-trace or locate work on customer invoices.

Law firms and accounts-payable teams

Review invoices for distinct line items; a bundled charge can lose the nontaxable treatment of process service.

Common questions

Q: Was service of process taxable?
A: No, when freestanding or separately stated.

Q: Was skip tracing taxable?
A: Yes.

Citations and references

• Fla. Stat. §§ 212.02(12), 212.05(1)(i)1.a., and 213.22
• Fla. Admin. Code r. 12A-1.0092(2) and (3)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13A-008

Original ruling text

Interim
Executive Director
Marshall Stranburg

TAX: Sales and Use Tax
TAA NUMBER: 13A-008
ISSUE: Process Serving Services
Skip Trace Services
STATUTE CITES: Section: 212.05, Florida Statutes (F.S.)
RULE CITE(S): Rule: 12A-l.0092, Florida Administrative Code (F.A.C.)
QUESTION:
1- Are the separately stated freestanding “service of process” charges subject to sales tax?
2- Are the “skip tracing” services performed by [Taxpayer] Services for [Taxpayer], that are in turn
billed to customers of [Taxpayer], subject to sales tax?
ANSWER:
1- The separately stated, freestanding service of process charges are not subject to sales tax.
2- Skip-tracing services performed by [Taxpayer] Services for [Taxpayer] that are in turn billed to
customers of [Taxpayer] are subject to sales tax.

April 11, 2013

Re:

Technical Assistance Advisement – TAA 13A-008
Process Serving Services
Skip Trace Services
XXX (Taxpayer)
Section: 212.05, Florida Statutes (F.S.)
Rule: 12A-l.0092, Florida Administrative Code (F.A.C.)

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

Dear XXX:
This letter is a response to your letter dated XXX, for the Department’s issuance of a Technical
Assistance Advisement (“TAA”) pursuant to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding
the Department’s position concerning the taxability of “skip trace” and locates services performed in
conjunction with process serving services. An examination of your letter has established that you have
complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the
Department is hereby granting your request for issuance of a TAA.
Issue
At issue is whether process servicing, and “locate” and “skip-trace” activities for process serving
purposes, performed by Taxpayer or another unrelated process server, or a licensed private
investigator/detective, are subject to sales tax.
Facts
Your petition provides the following information:
[Taxpayer] is in the business of, among other service offerings, providing “service of
process” services for law firms around the State. Most of these law firms represent banks or
other financial entities involved in the residential mortgage foreclosure business and, because of
an increased volume of foreclosures in the last few years, [Taxpayer’s] services have been in
demand. Although [Taxpayer’s] client base consists mostly of these types of residential
mortgage foreclosure clients, it does provide services to attorneys who pursue other types of
lawsuits. Thus, to the extent it matters, the Department’s tax analysis herein should not be
limited to the realm of residential mortgage foreclosures.
In a typical case that [Taxpayer] handles in XXX, the attorney assembles a complaint
package for its client (i.e., a plaintiff-mortgagee) and forwards the package to [Taxpayer] The
complaint package generally includes, among other things, the complaint and summons (and for
foreclosure cases, the lis pendens) for which service of process is to me made. The first service
provided by [Taxpayer] in most instances is to pick-up the complaint package from its law firm
client and file it at the appropriate courthouse and wait while the applicable summonses are
issued.
Once the complaint package is filed and original summonses are issued, service of
process can be had on each defendant. [Taxpayer] then forwards the papers to be served to its
affiliated process servers who are independent contractors licensed or otherwise authorized to
handle service of process in particular jurisdictions throughout the state of XXX. [Taxpayer]
also arranges for service of process nationwide to cover those instances where a Defendant in a
Florida action is (or is believed to be) located in another state.

Technical Assistance Advisement
Page 3

For ease of discussion herein, assume the following hypothetical set of facts:
•

[Taxpayer] receives a complaint package from its client XX (“XXX”) which is based out
of XXX;

•

The complaint package is a residential mortgage foreclosure to be filed in XXX, XXX
against Defendant XXX (“Defendant XXX”);

•

The Summons for Defendant XXX lists his address as XXX (“XXX”), which is also
located in XXX;

•

[Taxpayer] files the complaint package with the XXX Clerk of Court, obtains the issued
Summonses from the Clerk, and routes the Summonses for Defendant XXX to XXX
County Special Process Server, XXX (“Server XXX”).

You have provided three (3) Scenarios to demonstrate the type of activity performed by Taxpayer:
Scenario 1:
Server First locates Defendant XXX at the XXX Street address and serves him there.
Server First will prepare and send to [Taxpayer] a “Return of Service” (or other such similarly
titled document reflecting the manner of service or non-service on a Defendant at a particular
address).
Server First bills [Taxpayer] a certain sum, and [Taxpayer] marks up the charge to cover
its various administrative and management services and related costs, and charges XXX for the
serve with no associated sales tax.
Scenario 2:
Server First cannot serve Defendant XXX at the XXX Street address. [Taxpayer]
conducts a skip trace to locate other possible addresses for Defendant XXX and identifies an
alternate address for Defendant XXX at XXX Street in XXX (“XXX Street”), which is also in
Server First’s jurisdiction. [Taxpayer] provides the XXX Street address to Server First and she
serves him there. Server First will prepare a Return of Service for the XXX Street address
indicating “non-service” and she will also prepare a Return of Service for the XXX Street
address showing service completed.
Server First will bill [Taxpayer] for each of these two addresses. [Taxpayer] will add
some amount of mark-up and charge XXX “per address” attempted with no associated sales tax
for either the attempted service at XXX Street or the successful serve at XXX Street.
[Taxpayer] separately bills (in the same invoice but a different line item) XXX for the
skip trace work in locating the alternate address however this charge will have an associated
sales tax applied.

Technical Assistance Advisement
Page 4

Scenario 3:
Server First cannot serve Defendant XXX at the XXX Street or XXX Street addresses.
Through its skip trace efforts, [Taxpayer] locates a third alternate address for Defendant XXX in
XXX, but service is not successful at that XXX address. Thru [Taxpayer]’s skip trace
investigation all possible viable addresses for service have been identified and attempted, but
service cannot be accomplished on Defendant XXX.
[Taxpayer] prepares an “Affidavit of Diligent Search & Inquiry” (“Affidavit”) to
summarize all of its skip trace efforts and delivers it to XXX. Server First and the New Jersey
Server bill [Taxpayer] for each address attempted by them (a total of 3 addresses). [Taxpayer]
adds some amount of mark-up and charges XXX “per address” attempted with no associated
sales tax for any of the 3 addresses. [Taxpayer] separately bills (in the same invoice but a
different line item) XXX for the skip trace work conducted in preparing the Affidavit however
this charge will have an associated sales tax applied.
Notably, in all of the Scenarios above and indeed in [Taxpayer’s] daily business, all skiptrace activities are performed for [Taxpayer] by [Taxpayer] Services LLC (“[Taxpayer]
Services”), a wholly-owned subsidiary of [Taxpayer]. [Taxpapyer] Services is a licensed XXX
private detective agency, and it uses several types of databases when conducting its
investigations (including those containing public information and others containing non-public
information) – many of which are data aggregators with pay-per-search structures.
[Taxpayer] performs no skip-tracking work itself. [Taxpayer] Services does not issue
any invoices to [Taxpayer] for the searches performed by its employees, and receives no
payments from [Taxpayer] for the work performed. Accordingly, there is no sales tax paid to
[Taxpayer] Services by [Taxpayer] for skip-trace services performed by [Taxpayer] Services.
(Note: Although DOR did allow [Taxpayer] Services to register, it has consistently filed “zero”
returns as it has not collected any sales tax. Additionally, [Taxpayer] has issued the appropriate
resale certificate to [Taxpayer] Services.)
To summarize, in all of the Scenarios above, [Taxpayer] does not charge its clients sales
tax on the separately stated freestanding service of process fees. In Scenario 2 and 3 above
where “skip-trace” services are performed, [Taxpayer] does charge its clients sales tax on those
services.
Thus, you ask the following two (2) questions:

1. Are the separately stated freestanding “service of process” charges subject to sales tax?
2. Are the “skip tracing” services performed by [Taxpayer] Services for [Taxpayer], that are in
   turn billed to customers of [Taxpayer], subject to sales tax?

Technical Assistance Advisement
Page 5

Taxpayer’s Position
Taxpayer believes the separately stated charges for services of process that the third party process
server(s) bill to Taxpayer and that Taxpayer bills to its customers are not subject to the sales tax.
Taxpayer also believes that that the skip tracing services performed by [Taxpayer] Service for Taxpayer
that are, in turn, billed to Taxpayer’s customers, are subject to sales tax and Taxpayer is correct in
collecting sales tax from its clients on those services and remitting the tax to the Department.
Applicable Law and Discussion
Every person that charges for detective, burglar protection, and other protection services is exercising a
taxable privilege. Section 212.05(1)(i)1.a., F.S. Detective, burglar protection, and other protection
services are any of the services enumerated in North American Industry Classification System (NAICS)
National Numbers 561611, 561612, 561613, and 561621, as published in 2007 by the Office of
Management and Budget, Executive Office of the President. Section 212.05(1)(i)2., F.S. Taxable
services include skip tracing services. Rule 12A-1.0092(2)(a)12., F.A.C., and NAICS 561611.
However, process serving services performed by detectives, private investigators, or others are not
subject to tax when freestanding, or when separately stated on an invoice given to a purchaser which
includes taxable services. Rule 12A-1.0092(2)(c)4., F.A.C.
Skip tracing describes the process of locating a person for any number of purposes. Skip tracing is done
by collecting as much information as possible about the person to determine the person’s whereabouts.
Information sources used to locate the person may include phone number database, credit reports, job
application information, criminal background check, etc.
As provided by s. 212.05(1)(i)1.a., F.S., charges for detective, burglar protection, and other protection
services are subject to sales tax. Skip tracing services are specifically listed as a taxable service under
Rule 12A-1.0092(2)(a)12., F.A.C., and listed as an investigation service under NAICS National
Number 561611. Skip tracing includes any services performed to locate a person by the collection and
analysis of information, such as telephone directory, credit reports, and criminal background check.
Therefore, charges for skip tracing or locate services are subject to sales tax regardless of whether the
service is performed by a licensed private detective agency of some other person.
When a person performs skip tracing services and process serving services, the transaction involves both
taxable and nontaxable services. Under s. 212.02(12), F.S., a “[p]erson” includes “any individual, firm,
copartnership, joint adventure, association, corporation, estate, trust, business trust, receiver, syndicate,
or other group combination acting as a unit . . ..” The person providing the services must separately
state the taxable and nontaxable charges for the process serving services to remain nontaxable,
otherwise, the entire transaction will be subject to tax. Rule 12A-1.0092(3)(a), FA.C.
The answers to your two (2) questions are as follows:

1. Are the separately stated freestanding “service of process” charges subject to sales tax?
   Answer: The separately stated, freestanding service of process charges are not subject to
   sales tax.

Technical Assistance Advisement
Page 6

2. Are the “skip tracing” services performed by [Taxpayer] Services for [Taxpayer], that are in
   turn billed to customers of [Taxpayer], subject to sales tax?
   Answer: Skip-tracing services performed by [Taxpayer] services for [Taxpayer] that are in
   turn billed to customers of [Taxpayer] are subject to sales tax.
   This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on
   the Department only under the facts and circumstances described in the request for this advice, as
   specified in s. 213.22, F.S. Our response is predicated upon those facts and the specific situation
   summarized above. You are advised that subsequent statutory or administrative rule changes or judicial
   interpretations of the statutes or rules upon which this advice is based may subject similar future
   transactions to a different treatment from that which is expressed in this response.
   You are further advised that this response, your request, and related backup documents are public
   records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s.
   213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect
   confidentiality, we request you provide the undersigned with an edited copy of your request for
   Technical Assistance Advisement, the backup material and this response, deleting names, addresses and
   any other details which might lead to identification of the taxpayer. Your response should be received
   by the Department within 10 days of the date of this letter.
   Sincerely,

Mr. Joseph D. Franklin III
Tax Law Specialist
Technical Assistance and Dispute Resolution
Ph 850/717-6729
Control # 134668