Is a background-check company's resume-verification service, which digs into a job applicant's education, employment, credit and government records, a taxable detective service under New York sales tax?

Plain-English summary

Resume Verification, Inc. helps prospective employers check whether information on a job applicant's resume is accurate. Applicants sign a broad "Authorization and Release" letting the company pull records from former schools (transcripts, attendance, activities), present and former employers (employment history), government agencies (driver's license/DMV, criminal records, citizenship/immigration, military, Social Security), and credit/investigative bureaus, plus contact personal references. The company discloses that part of its service may include an "investigative report" built from personal interviews with third parties -- business associates, financial sources, or friends -- covering the applicant's character, general reputation, personal characteristics, and mode of living. Most of its actual work involves DMV records and criminal reports. It doesn't resell one employer's results to a different employer.

The Department found this squarely taxable as a "protective and detective service" under Tax Law § 1105(c)(8). Citing an appellate case (Compass Adjusters), the Department applied the broad definition of "private investigator" from Article 7 of the General Business Law -- which covers, among other things, investigating a person's "identity, habits, conduct, movements, whereabouts, affiliations, associations, transactions, reputation or character" for hire. Because Resume Verification's work (pulling records across education, employment, government, and credit sources, plus interview-based character investigation) fits comfortably within that definition and isn't excluded by any other provision of Article 7, its receipts are taxable.

What this means for you

Background-check and pre-employment screening companies

The depth of investigation is what matters here. A service that goes beyond simply confirming facts an applicant already provided -- pulling records from multiple independent sources and conducting character/reputation interviews with third parties -- looks like a taxable "detective service" under the broad private-investigator definition borrowed from General Business Law Article 7. Compare this to the narrower, nontaxable mortgage-verification service in the same era's TSB-A-97(22)S, which was limited to confirming an applicant's own stated facts by phone and didn't rise to this level.

Employers using background-check vendors

If your vendor's contract price includes this kind of multi-source records pull and reference/character investigation, expect New York sales tax to apply to the charge, plus any applicable local tax.

Accountants and tax professionals

This ruling and the contemporaneous Equifax mortgage-verification ruling (TSB-A-97(22)S) are a useful matched pair for drawing the line between taxable "detective/investigation" services and nontaxable simple fact-verification -- the depth and source-breadth of the inquiry, plus any character/reputation investigation, tips the balance toward taxable.

Common questions

Q: Why is this taxable when some fact-checking services aren't?
A: Because this service investigates broadly across education, employment, government, and credit records plus personal character/reputation through interviews -- meeting the General Business Law's broad definition of "private investigator" work, unlike a narrower service that only confirms an applicant's own stated facts.

Q: Does it matter that the company doesn't make hiring decisions itself?
A: No -- the taxable category covers the investigation/detective service itself, regardless of who ultimately decides whether to hire the applicant.

Q: Can another background-check company rely on this ruling?
A: No. This advisory opinion binds the Department only as to Resume Verification, Inc. and the specific scope of services described.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(8) (protective and detective services)
• Tax Law § 1212-A(f)(1) (local tax on protective/detective services)
• General Business Law Article 7, § 71(1) (definition of private investigator)

Prior rulings and cases referenced:

• Fidelifacts/Metropolitan New York, Adv Op Commr T&F, December 4, 1986, TSB-A-86(50)S
• Compass Adjusters and Investigators Inc. v Commissioner of Taxation and Finance, 197 AD2d 38

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(14)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S960628A

On June 28, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Resume Verification, Inc., P.O. Box 712,
Watertown, New York 13601.
The issue raised by Petitioner, Resume Verification, Inc., is whether
receipts from the sales of its resume verification services are subject to State
and local sales taxes.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Prospective employers use the services of Petitioner to verify the accuracy
of the information contained in resumes that are supplied by applicants for
employment. Petitioner is not involved in any employment decisions that are made
by prospective employers.
An applicant for employment must execute an "Authorization and Release,"
which was provided by Petitioner.
Petitioner indicated that this document
provides information on all of its business activities. The document authorizes:

• the applicant’s former educational institutions to release to
Petitioner all of the applicant’s high school, college and other
educational records pertaining to the applicant’s attendance, course
work and other school activities (collectively referred to as
"Educational Records");
• the applicant’s present and former employers to disclose to
Petitioner any and all information about the applicant’s present and
former employment history (collectively, "Employment History");
• any federal, state or local government agency to disclose to
Petitioner any information held by any such agency regarding the
applicant
and
capable
of
dissemination
including,
without
limitation, drivers license or motor vehicle information, criminal
record information, citizenship or immigration information, military
record information and social security information (collectively,
"Government Records");
• any investigative or credit agency or bureau to disclose to
Petitioner any and all information about the applicant’s financial
and credit record (collectively, "Credit Record");
• any reference source to respond to any and all inquiries made of
them by Petitioner (collectively, "Reference Inquiries"); and

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• Petitioner to supply the applicant’s Educational Records,
Employment History, Government Records, Credit Record, Reference
Inquiries and any Workers' Compensation claims and information, in
whole or in part, to the prospective employer.
The Authorization and Release also releases the previously mentioned
entities from any and all liabilities that may arise as a result of their
providing or disclosing to Petitioner any of the authorized information. In
addition, it releases Petitioner, its directors, officers, employees and agents
from any and all liabilities that may arise as a result of Petitioner providing
such information to the prospective employer and from any and all liabilities
that may arise as a result of any decision which the prospective employer may
make regarding the employment of the applicant.
In accordance with the Fair Credit Reporting Act (General Business Law,
art. 25), the applicant is advised in the Authorization and Release that part of
Petitioner’s service for verifying the accuracy of the information supplied by
the applicant to the prospective employer may include an investigative report
whereby information is obtained through personal interviews with third parties
such as business associates, financial sources or friends. The inquiry includes
information as to the character, general reputation, personal characteristics,
and mode of living of the applicant. The applicant is also advised of its right
to make a written request within a reasonable period of time for a complete
disclosure of the information concerning the nature and scope of the
investigative report.
Most of Petitioner’s business has involved Department of Motor Vehicle
records and criminal reports. To assure that each prospective employer receives
accurate, up-to-date information, Petitioner does not resell any information
obtained for one prospective employer to other prospective employers if the same
person applies to more than one employer for a job.
Applicable Law
Section 1105(c)(8) of the Tax Law imposes sales tax upon the receipts from
every sale, except for resale, of the following services:
Protective and detective services, including, but not limited to,
all services provided by or through alarm or protective systems of
every nature, including, but not limited to, protection against
burglary, theft, fire, water damage or any malfunction of industrial
processes or any other malfunction of or damage to property or
injury to persons, detective agencies, armored car services and
guard, patrol and watchman services of every nature other than the
performance of such services by a port watchman licensed by the
waterfront commission of New York harbor, whether or not tangible
personal property is transferred in conjunction therewith.

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Opinion
The Department of Taxation and Finance has held that services of the nature
provided by Petitioner fall within the meaning and intent of protective and
detective services, the receipts from the sale of which are subject to State and
local sales taxes (Tax Law, §§1105(c)(8); 1212-A(f)(1); former Tax Law,
§1212-A(h)(2)(i)(B)). See, Fidelifacts/Metropolitan New York, Adv Op Commr T&F,
December 4, 1986, TSB-A-86(50)S.
In Compass Adjusters and Investigators Inc. v Commissioner of Taxation and
Finance (197 AD2d 38) the Court indicated that "among the detective and
protective services covered by Tax Law § 1105(c)(8) are those provided by
detective agencies, but the Tax Law contains no definition of detective services
or detective agency." In this regard, the Court found it appropriate to equate
the terms "detective services" and "detective agencies" to the "broad definition
of private investigator" found in Section 71 of Article 7 of the General Business
Law.

Section 71(1) of such law provides in part:
"Private investigator" shall mean and include the business of
private investigator and shall also mean and include, separately or
collectively, the making for hire, reward or for any consideration
whatsoever, of any investigation, or investigations for the purpose
of obtaining information with reference to any of the following
matters, notwithstanding the fact that other functions and services
may also be performed for fee, hire or reward; crime or wrongs done
or threatened against the government of the United States of America
or any state or territory of the United States of America; the
identity, habits, conduct, movements, whereabouts, affiliations,
associations, transactions, reputation or character of any person,
group of persons, association, organization, society, other groups
of persons, firm or corporation; the credibility of witnesses or
other persons; the whereabouts of missing persons; the location or
recovery of lost or stolen property; the causes and origin of, or
responsibility for fires, or libels, or losses, or accidents, or
damage or injuries to real or personal property; or the affiliation,
connection or relation of any person, firm or corporation with any
union, organization, society or association, or with any official,
member or representative thereof; or with reference to any person or
persons seeking employment in the place of any person or persons who
have quit work by reason of any strike; or with reference to the
conduct, honesty, efficiency, loyalty or activities of employees,
agents, contractors, and sub-contractors; or the securing of
evidence to be used before any authorized investigating committee,
board of award, board of arbitration, or in the trial of civil or
criminal cases ....
In the present case, the services performed by Petitioner fall within the
scope of this definition. Moreover, Petitioner’s services are not expressly
excluded from this definition by any of the provisions of Article 7 of the

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General Business Law.
Accordingly, receipts from the sales of Petitioner’s
resume verification services are subject to State and local sales taxes under
Section 1105(c)(8) of the Tax Law.

DATED:

March 27, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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