Are a private investigator's guard, security-consulting, litigation-support, due-diligence, and corporate-investigation services subject to New York City's protective/detective-services tax and the statewide information-services tax, and how are they sourced?

Plain-English summary

Peat, Marwick, Main & Co. asked, on behalf of its client RST Corporation — a licensed private investigator headquartered in New York City — how several of RST's services are taxed. The key to the opinion is that two separate taxes can apply: the statewide information-services tax (Tax Law § 1105(c)(1)) and a distinct New York City 4% tax on protective and detective services (Tax Law § 1212-A / NYC Administrative Code § 11-2040). A report can escape one tax and still be caught by the other.

Service by service, the Department held:

• Guard service — taxable protective service. Assigning security personnel to a client's location is a protective service, taxable where rendered. The annual administrative (retainer) fee is part of the total receipt and cannot be carved out, even if separately stated (NYC Admin. Code § 11-2039(b)(2) bars deducting costs and overhead from the receipt).
• Corporate Security consulting — not taxed. Security-appraisal consulting is neither protective/detective nor, in effect, taxable: its customized written reports are an information service under § 1105(c)(1) but fall within that section's personal/individual exclusion — the reports are "uniquely" personal to each client and not substantially incorporated into reports for others (New York Life Ins. Co. / Metropolitan Life Ins. Co.).
• Litigation Support & Intelligence — taxable NYC detective service. Identifying and interviewing witnesses and analyzing evidence for litigation is a detective service subject to the NYC 4% tax. Even though the reports are personal and individual (so not taxable under the statewide § 1105(c)(1)), that exclusion does not shield them from the NYC protective/detective tax.
• Contests for Corporate Control & Corporate/Financial Crimes — taxable NYC detective service. These are investigative work product falling within protective/detective services, so they are subject to the NYC tax even where the reports are personal/individual. The Department distinguished Metropolitan Life (there the information was merely supplied by an applicant and verified, not developed by investigation).
• Due Diligence Analysis — credit-information service. Researching a company's or individual's business background for financing purposes falls within credit rating/reporting services taxable under both the NYC tax (§ 1212-A(h)(2)(i)(A)) and the statewide § 1105(c)(1) tax — unless the report is rendered only orally or is shown to be personal and individual (then exempt from § 1105(c)(1), but the NYC analysis stands on its own).

Sourcing. Whether the NYC tax applies turns on where the client takes delivery of the report, not where the investigation was performed or where the bill was sent. A report delivered in New York City is taxable; the same report delivered outside the City is not. Delivery to a client's law firm in the City counts as delivery to the client. If a report is delivered outside the City but the client then has it re-delivered to a City law firm, that second delivery is taxable, and the whole charge is taxable unless the two deliveries are separately stated.

Subcontracting. When RST hires other private investigators, RST is the provider/reseller, not the ultimate consumer — so it may buy those subcontracted services for resale, tax-free, by furnishing a Form ST-120 (Resale Certificate) within 90 days.

What this means for you

Two taxes, analyzed separately

New York City taxes protective, detective, and credit-reporting services under a local law (§ 1212-A) that is independent of the statewide information-services tax. A written report can be a nontaxable "personal and individual" information service for state purposes and still be fully taxable as a detective service in the City. Run both analyses; passing one is not passing the other.

The personal/individual exclusion is narrow

The exclusion in § 1105(c)(1) only removes a service from the statewide information-services tax. It does nothing for the NYC protective/detective tax. Investigative work product — witness interviews, surveillance, financial-crime investigation — stays taxable in the City even when the report is confidential and unique to one client.

Retainers and overhead can't be stripped out

A separately stated annual retainer or administrative fee tied to a taxable protective service is part of the taxable receipt. Costs, accounting charges, and corporate overhead are not deductible from the amount subject to tax.

Sourcing follows delivery of the report

For investigative and information services, the taxable event tracks where the client receives the report. Delivering into New York City — including to the client's City law firm — triggers the City tax; delivering outside the City does not, no matter where the work was done or the invoice was sent.

Common questions

Q: Our detective reports are confidential and unique to each client — are they tax-free?
A: Only for the statewide information-services tax. Genuine investigative/detective work is still subject to New York City's 4% protective/detective-services tax even when the report is personal and individual.

Q: We separately bill an annual retainer. Is it taxable?
A: Yes, when it's tied to a taxable protective service. The retainer is part of the total receipt; costs and overhead cannot be deducted from it.

Q: We did the investigation outside the City but delivered the report in Manhattan. Which rule controls?
A: Delivery. A report delivered to the client in New York City is subject to the City tax regardless of where the work was performed.

Q: We subcontract to other investigators. Do we pay tax on their bills?
A: No — you're reselling the service, not consuming it. Give the subcontractor a Resale Certificate (Form ST-120) within 90 days; you charge tax to your client based on where the report is delivered.

Citations and references

Statutes and regulations:

• Tax Law § 1212-A(h)(2)(i)(B) — New York City tax on protective and detective services
• Tax Law § 1212-A(h)(2)(i)(A) — New York City tax on credit rating and credit reporting services
• Tax Law § 1105(c)(1) — statewide tax on information services; personal/individual exclusion
• 20 NYCRR § 527.3 — sale of information services
• NYC Administrative Code § 11-2040 — protective, detective, and credit-reporting services
• NYC Administrative Code § 11-2039(b)(2) — "receipt" defined; no deduction for expenses

Cited authority:

• New York Life Ins. Co. v. State Tax Commission, 80 AD2d 675, affd sub nom. Metropolitan Life Ins. Co. v. State Tax Comm., 55 NY2d 758 — confidential character reports are uniquely personal and individual
• Metropolitan Life Insurance Company; Mutual Life Insurance Company, Decision of the State Tax Commission, April 15, 1986, TSB-H-85(129)S — information merely supplied by an applicant and verified

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_2s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-90 (2)S
Sales Tax
December 28, 1989

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880510A

On May 10, 1988, a Petition for Advisory Opinion was received from Peat, Marwick, Main
& Co., 345 Park Avenue, New York, New York 10154.
The issues raised by Petitioner, Peat, Marwick, Main & Co. are:
(1) Whether Section 1212-A of the New York State Tax Law and Section 11-2040
of the New York Administrative Code apply to the Guard service, the Corporate Security service and
the Litigation Support and Intelligence service provided by Petitioner's client, RST Corporation
(hereinafter referred to as RST).
(2)
(a) Whether Section 1212-A of the New York State Tax Law and Section 11­
2040 of the New York Administrative Code apply to the use of private investigators by RST;
(b) If so, is RST considered to be the ultimate consumer of such services or
is RST considered to be the provider of such services to its clients;
(c) If the services of private investigators are subject to sales tax, is the sales
tax based on where the private investigation is located, where the client is located, or the location
where delivery of the report occurs.
(3) Whether Section 1105(c) (1) of the New York State Tax Law and Section 527.3
of the Sales and Use Tax Regulations apply to the receipts from charges to RST's clients for oral or
written reports resulting from RST's Due Diligence Analysis service, Contest for Corporate Control
service or Corporate and Financial Crime service.
(4) Whether RST's delivery of an oral report to a client, by telephone or in person, is
subject to the 4% New York City Tax in the following transactions:
a) RST delivers the oral report from its New York City office to a client
located within New York City.
b) RST delivers the oral report from its New York City office to a client
located outside New York City.
c) RST delivers the oral report from its office outside New York City to a
client located within New York City.
d) RST delivers the oral report from its office in New York City to a client
located outside New York City. Subsequently, the client requests RST to deliver the same
report to its law firm located within New York City.
e) RST delivers the oral report from its New York City office to an individual
located in Connecticut, subsequently billing a New York City based corporation for the
services provided.

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f) RST delivers an oral report from its New York City office to a law
firm located within New York City, subsequently billing the client at a location outside New
York City.
RST, a private investigator licensed pursuant to Sections 70 and 71 of the New York General
Business Law, is headquartered in New York City and has offices in other cities in the United State
and foreign countries.
RST performs various professional services for its clients. The processes used to provide
such services and Petitioner's position concerning the application of sales tax to such services are
as follows:
Guard Services - Guard services are provided on an hourly basis and include an annual
administrative (retainer) fee.
Petitioner contends that the receipts from the Guard services which RST renders through the
use of protective guards is subject to the 4% New York City tax while the annual administrative fee
levied in regard to these services is not subject to the 4% New York City tax because the charges are
separately stated and do not reflect charges for protective services.
Corporate Security - The Corporate Security service involves expert consultation in assisting
clients with the safeguarding of assets. A security appraisal is performed by RST and often will
include a detailed report with recommendations for specific effective measures designed to avert
business security lapses. Each report is customized and unique to the specific requirements of the
client.
Litigation Support and Intelligence - The Litigation Support and Intelligence service involves
obtaining and supporting information relating to the preparation of corporate and commercial
litigation for legal counsel by the identification of potential witnesses, interviewing such witnesses
and analyzing evidence.
Petitioner contends that the services rendered by RST relating to litigation support and
intelligence gathering are considered professional services which are personal and individual in
nature and which may not be incorporated into reports furnished to others. Petitioner makes reference
to Sales and Use Tax Regulation Section 527.3(b)(3).
Due Diligence Analysis - The Due Diligence Analysis service involves obtaining information
relating to past and current business activities of corporations and individuals seeking financing. The
information is obtained by researching newspapers, reviewing public records, conducting personal
interviews and use of electronic storage retrieval services.
Contests for Corporate Control - The Contests for Corporate Control service requires the
obtaining of information regarding the background and operations of a client's adversaries relating
to hostile takeovers, proxy battles etc. This includes the analysis of securities filings, review of

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litigation documents, and interviews with individuals. In addition, information is obtained from
newspapers and use of electronic storage retrieval services.
Corporate and Financial Crimes - The Corporate and Financial Crimes service involves the
investigation of crimes against clients and assisting such clients in discovering and curtailing
criminal activities such as misappropriation of assets and the theft of trade secrets. A majority of this
information is obtained by conducting personnel interviews and analyzing the client's financial
documents.
Petitioner contends that the services rendered by RST relating to Due Diligence Analysis,
Contests for Corporation Control, and Corporate and Financial Crime Analysis are not subject to the
4% New York City Tax nor the statewide tax on information services because these services are not
protective or detective in nature and are considered professional services of a confidential (personal
and individual) nature.
While the primary means of transmitting the information to its clients is on an oral basis,
RST may furnish the information to its clients in the form of a written report.
Occasionally, RST subcontracts work to private investigators, based both within and outside
New York State. These investigators bill RST directly for the services performed. Subsequently,
when RST bills its clients for those services at a marked-up value, the bill represents that the charges
are for professional services rendered.
Petitioner contends that if the services of private investigators are subject to the 4% New
York City tax, then RST should be the consumer of these services since the services rendered to
clients are professional services which are considered personal and individual in nature.
Issue I
Section 1212-A(h)(2)(i)(B) of the Tax Law authorizes the imposition of sales tax upon the
receipts from every sale, except for resale, of protective and detective services in cities of one million
or more.
Section 11-2040 (a)(2) of the New York Administrative Code imposes a tax upon receipts
from every sale, expect for resale, of protective and detective services including guard, patrol and
watchman services of every nature.
Section 11-2039(b)(2) of the New York Administrative Code defines "receipt" as the amount
of the sale price of any property and the charge for any service taxable under this subchapter, without
any deduction for expenses.
RST's Guard service, which is comprised of assigning security personnel to perform guard
service at the client's location constitutes the providing of a protective service. Protection services
are taxable where rendered. Accordingly, receipts from RST's charges to its clients for providing the
protective service within New York City and the receipts from the annual administrative (retainer)

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fee are subject to the 4% New York City tax under the provisions of Section 1212-A(h)(2)(i)(B) of
the Tax Law and Section 11-2040 (a)(2) of the New York City Administrative code.
Petitioner's contention that the annual administrative fee is not subject to the 4% New York
City tax as such fee represents a margin of profit plus costs incurred from accounting services and
corporate overhead, and does not reflect charges for protective service is erroneous. The charges
included in the annual administrative fee, even though billed annually and separately from the
charges for the providing of security personnel, are actually expenses or costs incurred in providing
a protective service and are considered to be part of the total receipts from the sale of such service.
Therefore, in accordance with the provisions of Section 11-2039(b)(2) such expenses are not to be
deducted from the sale receipts but are to be included in the total receipt for the purpose of
computing the 4% New York City tax due.
RST's Corporate Security service includes consulting with a client concerning the
safekeeping of the client's business assets, and subsequently performing a security appraisal generally
followed by a detailed report recommending measures designed to avert business security lapses.
Each report is customized and unique to the specific requirements of the client.
Whereas RST's Corporate Security service is a consulting service and is not of a protective
or detective nature, the provisions of Section 1212-A of the Tax Law and Section 11-2040 of the
New York Administrative Code do not apply to the receipts from RST's sales of such service.
However, whenever RST follows such consultations with the issuance of a written report
recommending certain measures to prevent business security lapses, RST is considered to be
performing an information service.
Under the provisions of Section 1105(c)(1) of the Tax Law, the receipts from the sale of an
information service are subject to state and local sales tax except when the information provided is
of a personal or individual nature and is not or may not be substantially incorporated in reports
furnished to other persons. In Matter of New York Life Ins. Co. v. v State Tax Commission, (80
AD2d 675, affd sub nom. Matter of Metropolitan Life Ins. Co. v State Tax Comm. 55 NY2d 758,
confidential character reports containing highly personal information about individuals were held
to be of the uniquely personal and individual nature contemplated by the Tax Law. Accordingly, as
the information in RST's written reports is "uniquely" personal to each specific client and is not and
may not be substantially incorporated into reports furnished to other clients, the provisions of Section
1105(c)(1) of the Tax Law do not apply to the receipts from RST's sales of such reports.
RST's Litigation Support and Intelligence service entails the identification of potential
witnesses, the interviewing of such witnesses and the analyzing of evidence for the purpose of
providing information for use in the preparation of corporate and commercial litigation for legal
counsel.

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Section 1212-A(h)(2)(i)(B) of the Tax Law and Section 11-2040(a)(2) of the New York
Administrative Code are intended to apply to protective and detective services of every nature.
Protective and detective services include but are not limited to personal or business protection;
divorce work; suspect surveillance; the finding of missing persons or stolen funds; the investigation
of actual or suspected thefts; the location of missing property; the handling of criminal cases and the
performance of polygraph tests and electronic sweeps. Detective services also include investigations
to obtain information regarding crimes; the identity, conduct, whereabouts, reputation, or character
of persons; the credibility of witnesses; and other matters; or securing evidence to be used in trials
or hearings. (see: 13 NY Jur 2d, Investigators, Private Detectives, and Watch, Guard, or Patrol
Agencies §§ 284.)
Accordingly, the services of trial preparation investigating and the taking and preparing of
various statements, affidavits, etc. by a detective agency constitute the performance of a detective
service, the receipts from the charges therefore being subject to the 4% New York City tax, under
the provisions of Section 1212-A(h)(2)(i)(B) of the Tax Law and Section 11-2040(a)(2) of the New
York Administrative Code.
Petitioner infers that receipts from charges to RST's clients for the Litigation Support and
Intelligence services are not subject to the sales tax imposed under Section 1105(c)(1) of the Tax
Law and Section 527.3 of the Sales and Use Tax Regulations because such services result in the sale
of information which is personal and individual in nature and which may not be incorporated into
reports furnished to others. While Petitioner's inference is correct, RST's charges to its clients are
not precluded from being subject to the 4% New York City tax inasmuch as the services are
investigative in nature and fall within the provisions of Section 1212-A(h)(2)(i)(B) of the Tax Law
and Section 11-2040(a)(2) of the New York City Administrative Code.
Issue 2
(a) When RST subcontracts investigative work to private investigators, Section 1212-A of
the Tax Law and Section 11-2040 of the New York Administrative Code will apply to those
transactions where delivery of the investigative report to RST or directly to RST's client occurs
within New York City.
(b) When RST subcontracts the investigative work to a private investigator, RST will not be
considered as the ultimate consumer of such services, but will be considered as the provider of such
services to the client. Petitioner's contention that RST should be considered the consumer of these
services because they are professional services which are personal and individual in nature is
erroneous.
Because RST will be purchasing the subcontracted services for resale purposes, such
purchases will not be subject to the 4% New York City tax, provided RST furnishes the
subcontractor a properly completed Form ST-120, Resale Certificate no later than 90 days after the
service was rendered.

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(c) The determination of whether the services of private investigators are subject to the 4%
New York City tax is based on delivery of the investigative report occurring within New York City
and not according to where the services are rendered. When the investigative services are performed
outside New York City but delivery of the investigative report to the client occurs within New York
City, the charge to the client will be subject to the 4% New York City tax. When the investigative
services are performed within New York City but delivery of the investigative report to the client
occurs outside New York City, the charge to the client will not be subject to the 4% New York City
tax.
Issue 3
Petitioner's contention that the investigative services rendered by RST relating to the Contests
for Corporate Control service and the Corporate and Financial Crimes service are not protective or
detective in nature but are professional services of a personal, individual and confidential nature and
therefore not subject to the 4% New York City tax imposed under Section 11-2040 of the New York
Administrative Code is erroneous.
The activities performed by RST in rendering the Contests for Corporate Control service and the
Corporate and Financial Crimes service are activities which fall within the meaning of protective and
detective services under Section 1212-A(h)(2)(i)(B) of the Tax Law and Section 11-2040(a)(2) of
the New York Administrative Code. It is noted that the information contained in these reports is the
work product of RST's investigations into various individuals and corporations and is not merely
information supplied by an applicant and verified by a detective agency as was the case in
Metropolitan Life Insurance Company; Mutual Life Insurance Company, Decision of the State Tax
Commission, April 15, 1986, TSB-H-85(129)S. Accordingly, even though the reports delivered to
the client by RST may be of a personal or individual nature, making the receipts from the charges
for such services not subject to the tax imposed under Section 1105(c)(1) of the Tax Law, such
receipts are subject to the 4% New York City tax imposed under Section 1212-A of the Tax Law and
Section 11-2040 of the New York Administrative Code.
Petitioner's contention that the investigative services rendered by RST relating to the due Diligence
Analysis Service are not protective or detective in nature is correct. However, Petitioner's contention
that because the services rendered are of a personal, individual and confidential nature, such services
are therefore not subject to the 4% New York City tax imposed under Section 11-2040 of the New
York Administrative code is erroneous.
Section 527.3 of the Sales and Use Tax Regulations states:
Sale of information services. (Tax Law, § 1105[c][1])
(a) Imposition
(4) Charges for credit information services, other than those that are transmitted
orally, are subject to tax. The following rules shall apply in determining taxability of services that
include both oral and written reports:
(i) Any fee for a written report is taxable

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(ii)

(b)

Any fee for an oral report is taxable if the oral report is preliminary to the
written report.
*
Exclusions

*

*

(1)

Sales tax does not apply to receipts from sales of information services which
are for resale as such.

(2)

The sales tax does not apply to the receipts from the sales of information
which is personal or individual in nature and which is not or may not be
substantially incorporated into reports furnished to other persons by the
person who has collected, compiled or analyzed such information.

Section 1212-A(h)(2)(i)(A) of the Tax Law authorizes the imposition of sales tax upon:
[T]he receipts from every sale, except for resale, of credit rating,
credit reporting ... services, including, but not limited to those
services provided by mercantile and consumer credit rating or
reporting bureaus or agencies and credit adjustment or collection
bureaus or agencies, whether rendered in written or oral form or in
any other matter, except to the extent otherwise taxable under article
twenty-eight of this chapter...
Section 11-2040(a)(1) of the New York Administrative Code imposes tax on:
[c]redit rating and credit reporting services, including, but not limited
to, those services provided by mercantile and consumer credit rating
or reporting bureaus or agencies, whether rendered in written or oral
form or in any other manner, except to the extent otherwise taxable
under article twenty-eight of the tax law.
Accordingly, the activities performed by RST in rendering the Due Diligence Analysis
service fall within the category of credit information services and are subject to the New York City
tax imposed under Section 1212-A of the Tax Law and Section 11-2040 of the New York
Administrative Code, as well as the Statewide tax imposed under Section 1105(c)(1) of the Tax Law.
However, in those instances where the report is rendered only in oral form or where the report
rendered can be shown to be of a personal and individual nature, such report will be exempt from
the tax imposed under Section 1105(c)(1) of the Tax Law.
When RST performs investigative services for a client and presents the client the results of
such investigation in the form of an oral report by either telephone or in person, the sales tax status

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of the receipts from such service will be determined by the location at which the client takes delivery
of such report.
Whereas Section 1212-A(h)(2)(i)(B) of the Tax Law and Section 11-2040(a)(2) of the New
York Administrative Code are intended to apply to protective and detective services of every nature,
receipts from investigative services which result in an oral report being delivered to a client at a
location within New York City will be subject to the 4% New York City tax. Accordingly, the
receipts from RST's investigative service will be subject to the 4% New York City tax in the
following transactions enumerated above:
(a) RST delivers the oral report from its New York City office to a client located
within New York City.
(c) RST delivers the oral report from its office outside New York City to a client
located within New York City.
(f) RST delivers an oral report from its New York City office to a law firm located
within New York City, subsequently billing the client at a location outside New York City. In the
instant transaction, the law firm is considered to be acting as agent or representative of the client and
delivery of the oral report to the law firm constitutes delivery to the client within New York City.
The provisions of Section 1212-A(h)(2)(i)(B) and Section 11-2040(a)(2) do not apply to
receipts from investigative services which result in an oral report being delivered to a client at a
location outside New York City. Therefore, the receipts from RST's investigative service will not
be subject to the 4% New York City tax in the following transactions enumerated above:
(b) RST delivers the oral report from its New York City office to a client located
outside New York City.
(e) RST delivers the oral report from its office in New York City to an individual
located in Connecticut, subsequently billing a New York City based corporation for the services
provided. In the instant transaction delivery of the report occurs outside New York City, thereby
excluding the transaction from the provisions of Section 1212-A(h)(2)(i)(B) of the Tax Law and
Section 11-2040(a)(2) of the New York Administrative Code. The rendering of the bill to a New
York City based Corporation does not effect the tax status of the transaction.
In transaction d) enumerated above, the provisions of Section 1212-A(h)(2)(i)(B) and Section
11-2040(a)(2) will not apply to the transaction in which the oral report is delivered to a client outside
New York City provided that this portion of the transaction is shown separately on the billing
rendered to the client. However, such provisions will apply to the receipts derived from the portion
of the transaction in which the same report is delivered to the client's law firm located within New

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York City. If the bill rendered to the client does not separately state the charges for the additional
report delivered within New York City, the entire charge to the client will be subject to the 4% New
York City tax.

DATED: December 28, 1989

s/FRANK J. PUCCIA
Director
Technical Services

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.