Is a biometric identity-verification service that lets airport travelers skip through security lines faster subject to Texas sales and use tax?

Plain-English summary

The Texas Comptroller ruled that a biometric identity-verification service — the kind travelers pay an annual fee to join so they can move through airport security checkpoints faster using fingerprint or iris scans — is not subject to Texas sales and use tax.

The provider's service works like this: customers enroll with an annual fee, upload fingerprints, iris scans, and passport/biographical data at kiosks, and then at the airport verify their identity at a kiosk before an employee confirms it matches their boarding pass and escorts them to an expedited TSA screening lane.

Two taxable-service categories were considered and both were ruled out. Security services require a private-security license under Texas Occupations Code § 1702.101/.102 (the categories are things like investigations companies, guard companies, and private investigators); the provider held no such license and didn't perform background checks or investigations, so it wasn't providing a taxable security service. Data processing services cover things like data entry, retrieval, search, and storage — and the provider clearly gathers, stores, and retrieves biometric data. But Texas Administrative Code Rule 3.330(a) excludes data processing that merely facilitates a different, non-taxable service. Here, the data handling exists only to support the underlying identity-verification/expedited-screening service, which isn't itself one of the services the Tax Code lists as taxable — so the whole package stays untaxed.

What this means for you

Biometric ID, trusted-traveler, and expedited-screening service providers

If your service verifies identity using biometric data to speed customers through a checkpoint — rather than performing background investigations or requiring a private-security license — the underlying membership/enrollment fee is likely not subject to Texas sales tax, even though your service necessarily stores and retrieves sensitive biometric data.

Businesses combining data storage with a non-listed core service

This is another example of the recurring Texas rule: heavy computer/data use doesn't automatically make a service taxable "data processing." What matters is whether the data handling is the point of what you sell, or just the mechanism that makes some other, non-enumerated service work.

Accountants and tax professionals

The security-service analysis turns on licensure — check whether the specific service actually requires a Chapter 1702 Occupations Code license before assuming "security-adjacent" services are taxable. The data-processing analysis turns on the Rule 3.330(a) facilitation exclusion, the same doctrine applied to benefits administration and similar service-plus-data offerings in other Comptroller rulings.

Common questions

Q: Is a biometric airport-screening membership service taxed as a security service in Texas?
A: Not if the provider isn't required to hold a private-security license under Texas Occupations Code § 1702.101/.102 and doesn't perform background checks, investigations, or guard/patrol functions.

Q: Doesn't storing fingerprints and iris scans count as taxable data processing?
A: Storing and retrieving that data technically fits the data-processing definition, but Comptroller Rule 3.330(a) excludes data processing that merely facilitates a different, non-taxable service — here, expedited identity verification.

Q: Would the answer change if the provider also ran background checks?
A: Very possibly. The ruling turns partly on the provider explicitly not performing background checks, investigations, or other functions requiring a Chapter 1702 license — adding those could bring the security-service tax into play.

Q: Can I rely on this ruling for my own identity-verification business?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific service and facts and can't be relied on by others.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed)
• Tex. Tax Code § 151.010 (Taxable Item)
• Tex. Tax Code § 151.0075 (Security Service — definition, tied to Occupations Code licensure)
• Tex. Tax Code § 151.0035 (Data Processing Services — definition)
• Tex. Tax Code § 151.0101(a)(12), (14) (Taxable Services — data processing, security)
• 34 Tex. Admin. Code § 3.333(a)(1) (Security Services — licensed entity categories)
• 34 Tex. Admin. Code § 3.330(a)(1) (Data Processing Services — facilitation exclusion)
• Tex. Occ. Code §§ 1702.101, 1702.102, 1702.104-108 (private security licensing)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202309040L

Original ruling text

September 19, 2023

RE: Private Letter Ruling No. PLR20220920132448

Dear **,

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Sep. 19, 2022, and supplemental information furnished Nov. 16, 2022. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of your client’s services which involve obtaining identifying documentation such as passports, fingerprints, and iris scans from the client’s customers to authenticate their identity at airports.

Facts Presented

** (Taxpayer) is in the business of verifying the identity of individuals so that the individuals may pass through airport security checkpoints more quickly. To sign up for Taxpayer’s biometric identification service, customers pay an annual enrollment fee and upload personal identifying information, including fingerprints, iris scans, biographical information, and/or passport information to Taxpayer’s platform. To upload fingerprints and iris images, customers must use Taxpayer’s kiosks located in airports.

To check in at an airport using Taxpayer’s service, customers verify their identity at a kiosk using either their fingerprints or iris scans. Taxpayer’s employees also scan a customer’s boarding pass and confirm relevant information including airport, airline, name, date, etc. Once the Taxpayer’s employee verifies the customer’s identity and confirms it matches the boarding pass information, the customer is escorted to the Taxpayer’s designated lanes at Transportation Security Administration (TSA) checkpoints for expedited screening.

Taxpayer does not provide security or background checks. Taxpayer states it is not required to hold a license under Texas Occupations Code Section, 1702.101 or Section 1702.102.

Question, Ruling and Analysis

Question: Is Taxpayer’s biometric identification service subject to Texas sales and use tax?

Ruling: No. Taxpayer’s service is a nontaxable service.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term taxable item includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Section 151.0101 (Taxable Services) includes security services and data processing services in the list of services subject to Texas sales and use tax. Section 151.0101(a)(12), (14).

A security service is any service for which a license is required under Texas Occupations Code, Section 1702.101 or 1702.102. Section 151.0075 (Security Service). Rule 3.333(a)(1) (Security Services) lists entities who must be licensed, and therefore, the services they provide would be taxable security services. The companies include an investigations company, guard company, security services contractor, private security officer, detective service, or a private investigator.

Taxpayer states it is not required to hold a license under Texas Occupations Code, Section 1702.101 or Section 1702.102. Additionally, Taxpayer’s service involves verifying a customer’s identity based on biometric information that the customer has previously provided to Taxpayer. Taxpayer does not gather or compile information for background checks or otherwise perform services described in Tex. Occ. Code §§ 1702.104-108 which describe the types of services provided by investigation companies, guard companies, etc. Therefore, Taxpayer is not performing taxable security services under Sections 151.0075 and 151.0101(a)(14).

Data processing includes word processing, data entry, data retrieval, data search, information compilation, payroll and business accounting data production, and other computerized data and information storage or manipulation. Section 151.0035 (Data Processing Services). Rule 3.330(a)(1) (Data Processing Services), states data processing includes, “the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information.”

Taxpayer provides a biometric identity verification service. This service allows for expedited passenger screening through an airport’s security checkpoints. As part of its service, Taxpayer performs activities that meet the definition of data processing. For example, Taxpayer gathers and stores customers’ electronic information including fingerprints and iris scans. Taxpayer retrieves and verifies this information when a customer checks in at Taxpayer’s kiosks. However, these activities are performed to facilitate Taxpayer’s service to verify a customer’s identity based on biometric information and allow its customers expedited access at TSA checkpoints. Therefore, Taxpayer’s biometric identification service is not one of the enumerated taxable services listed in Section 151.0101 and is not subject to Texas sales and use tax.

The Texas Tax Code and Texas Administrative Code 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. 20220920132448.

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.