Does a private investigation and forensic accounting company owned by a licensed CPA owe Texas sales tax on its services as a taxable 'security service,' or is it exempt because the owner is a CPA?

Plain-English summary

A private investigative and forensic accounting company — formed and solely owned by a licensed Texas CPA — does financial investigations and litigation support work. The company holds an Investigative Company License (ICL) from the Texas Department of Public Safety's Private Security Bureau, and its sole employee is a licensed private investigator. Since starting operations, the company has been collecting and remitting Texas sales tax on its services, but asked whether it actually qualifies for an exemption simply because its owner and operator is a licensed CPA.

The Comptroller ruled there is no such exemption — the company's services remain taxable "security services." Texas taxes security services, defined by regulation to include any service requiring a license under the Occupations Code's private security chapter — which squarely covers investigations-company and private-investigator licenses. The company argued that an Occupations Code provision exempts accountants and accounting firms from the private-security licensing chapter altogether, but that exclusion only applies to a business actually licensed as an accounting firm performing services regulated under the separate Accountancy Act chapter — not to a private investigations company that happens to be owned by a CPA. The exclusion also doesn't extend to services that are independent of the accounting profession itself, and forensic/investigative work here was licensed and performed under the private-security framework, not the accountancy one.

What this means for you

CPA-owned businesses branching into adjacent regulated fields (investigations, security, consulting)

Holding a professional license (like a CPA license) for one profession does not carry over an exemption to a different regulated, separately licensed business you also own and operate — even if the two fields overlap in practice (forensic accounting sits between accounting and investigation). What matters for Texas sales tax purposes is which license actually governs the service being sold.

Private investigation, forensic accounting, and litigation-support firms

If your services require a license under the Occupations Code's private security chapter (investigations company or private investigator license), expect them to be taxed as "security services" regardless of your firm's other professional credentials or ownership structure.

Accountants and tax professionals

The ruling is a clean two-step test: (1) does the service require a private-security-chapter license (if so, it's a taxable security service), and (2) does the accountant exclusion actually apply (only if the entity is itself licensed as an accounting firm AND the specific services are regulated under the Accountancy Act, not merely performed by someone who happens to hold a CPA license).

Common questions

Q: Does my CPA license exempt my other, separately licensed business from sales tax?
A: No — this ruling confirms that holding a CPA license personally, or having your business owned by a CPA, doesn't exempt services from a different taxable category (like security services) just because of that ownership.

Q: What would it take to actually qualify for the accountant exclusion under Occupations Code § 1702.324(b)(14)?
A: The entity itself would need to be licensed as an accounting firm, and the specific services would need to be regulated under the Accountancy Act (Occupations Code Chapter 901) — not merely adjacent to accounting work.

Q: Is all forensic accounting work automatically a taxable security service?
A: Not necessarily — this ruling turns on the fact that the company held an Investigative Company License and its work required private-investigator licensing. Forensic accounting performed strictly under an accounting-firm license and regulated solely under the Accountancy Act could be analyzed differently.

Q: Can another CPA-owned investigative firm rely on this ruling?
A: No. It's a private letter ruling binding on the Comptroller only for the taxpayer and facts submitted, and it cannot be relied on by any other taxpayer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed); § 151.010 ("Taxable Item"); § 151.0101 ("Taxable Services" — security services)
• 34 Tex. Admin. Code Rule 3.333 (Security Services)
• Tex. Occ. Code § 1702.101 (Investigative Company License Required); § 1702.104 (Investigations Company — definition)
• Tex. Occ. Code § 1702.324(b)(14) (accountant/accounting-firm exclusion); § 1702.324(c) (exclusion limited to regulated accounting services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201807027L

Original ruling text

July 11, 2018

RE: Private Letter Ruling No. 20171117131954

*, Taxpayer No. *

Dear ****:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated Nov. 8, 2017. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of services performed by a private investigative company owned and operated by a licensed Certified Public Accountant (CPA).

Facts Presented

COMPANY, INC. (Taxpayer), is a private investigative and forensic accounting company formed in December of 2007. INDIVIDUAL A the sole owner of the company, holds a CPA license issued by the State of Texas.

Taxpayer’s work includes forensic accounting activities, consisting primarily of financial investigations and litigation support. Taxpayer holds a private Investigative Company License (ICL) from the Texas Department of Public Safety’s Private Security Bureau, and INDIVIDUAL A is licensed as a corporate officer of Taxpayer. Taxpayer’s sole employee is licensed as a private investigator by the Texas Department of Public Safety.

Taxpayer has a Texas sales tax permit. Since it began operations, Taxpayer has collected and remitted Texas sales tax on all receipts from sales of its services.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question:

Are private investigative and forensic accounting services exempt from Texas sales tax because the services are performed by a company owned and operated by a licensed CPA?

Ruling:

The private investigative and forensic accounting services performed by a licensed private investigator or a company that holds an ICL are security services subject to Texas sales and use tax. There is no sales tax exemption for taxable services performed by a person who holds a CPA license or by an entity owned and operated by a licensed CPA.

Analysis:

Sales tax is imposed on each sale of a taxable item in Texas. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Those services specifically enumerated in Section 151.0101 (“Taxable Services”) are taxable.

Section 151.0101 (Taxable Services) lists “security services” as a taxable service. Rule 3.333 (Security Services) defines security service as “any service for which a license is required under Occupations Code[, Sections]1702.101 or []1702.102, Private Security Chapter, and includes any service provided within the scope of the required license as an investigations company … [or] private investigator.” Occupations Code Section 1702.101 (ICL Required) requires any person acting as an investigations company to hold a license as an investigative company. Occupations Code Section 1702.104 (Investigations Company) states that a person acts as an investigations company if he or she “engages in the business of obtaining or furnishing … information” related to “the identity, habits, business, occupation, knowledge, efficiency, loyalty, movement, location, affiliations, associations, transactions, acts, reputation, or character of a person.”

Taxpayer provides private investigative and forensic accounting services that fall under Occupations Code, Section 1702.104. Taxpayer obtained an ICL from the Texas Department of Public Safety in accordance with Occupations Code, Section 1702.101, and Taxpayer’s sole employee is a private investigator who holds license for performing the services listed in Section 1702.104. Therefore, Taxpayer is providing taxable security services. The fact Taxpayer’s sole owner is a licensed CPA does not exempt from tax the security services Taxpayer provides.

Taxpayer cites Occupations Code, Section 1702.324(b)(14), noting that Chapter 1702 does not apply to “a person or firm licensed as an accountant or accounting firm under Chapter 901, an owner of an accounting firm, or an employee of an accountant or accounting firm, while performing services regulated under Chapter 901.” Since Taxpayer is not licensed as an accounting firm, the exclusion described in Section 1702.324(b)(14) does not apply. Furthermore, Section 1702.324(c) states that the exemption does not apply to activities or services that are independent of the service or profession that is the basis for the exemption. Taxpayer is a private investigative and forensic accounting company which provides taxable security services.

The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20171117131954.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.