How did Texas tax a private investigator's security-related work, mixed charges, photographs, expenses, and employee compensation?

Plain-English summary

The Comptroller said a private investigator's receipts were presumed taxable unless the investigator established otherwise. Work connected in any way with performing a security service was taxable. If taxable and nontaxable services were provided for one charge, the entire charge was taxable under Rule 3.333(g).

When the investigator obtained photographs for a client, the total bill was taxable, including film, processing, and the hourly fee. Film and developing could be purchased tax-free with a resale certificate if both the photographs and negatives were transferred to the client.

A person excluded from licensing under the statute's employer-employee exception did not charge the employer sales tax on salary or employer-reimbursed expenses. For the independent investigator, taxes paid to vendors on items, hotels, or gasoline did not remove the tax from the total charge billed to the client, and expenses did not have to be separately stated.

What this means for you

The historical answer distinguishes an independent security-service provider from an employee working exclusively and regularly for one employer. It also shows that separately incurred or vendor-taxed costs could remain part of a taxable client charge.

Common questions

Was every task performed for the law firm taxable? The letter said work connected in any way to a security service was taxable. It also taxed a single charge combining taxable and nontaxable services in full.

Were film, processing, and the investigator's hourly fee taxable? Yes. The entire billing was subject to tax.

Could film and developing be purchased for resale? Yes, if both photographs and negatives were given to the client.

Was an employee's salary taxable? Not where the person fell within the cited employer-employee licensing exception; employer-reimbursed expenses were also excluded.

Did vendor taxes on hotels or gasoline reduce the taxable client charge? No. The investigator paid the vendor's applicable tax, while the total charge to the client remained taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.333(g) — historical rule cited for a single charge combining taxable and nontaxable security-related services.
• Article 4413(29bb), V.A.C.S., § 3(a)(1) — historical Private Investigators and Private Security Agencies Act employee exception discussed in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0853D01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller December 1, 1987

Dear ****:

Thank you for your questions on the taxability of Security Services. I
have tried to reach you by phone but haven't been able to reach you.
Your questions are restated with responses below.

Question 1: I am a licensed private investigator. I work primarily for
one law firm that has offices in several cities in Texas. I receive a
monthly amount of money each month that does not include INVESTIGATION
Work, for this money I do whatever is requested of me, "i.e." answer
whatever questions about anything I am able to.

Meet a client of the firm and fill out forms, go mail a letter, transmit
a message, just anything I am requested to do I do. Does the State of
Texas require that I pay sales tax on this money?

Response: Under the Sales Tax Law your gross receipts are presumed to
be taxable until the contrary is established. If you do work that is
in any way connected to the performance of a security service, you must
charge tax to your customers. If you perform taxable and nontaxable
services for a single charge, you must collect tax on the total. Please
refer to section (g) of the enclosed Rule 3.333.

Question 2: When I am directed to obtain photos of something or someone,
I purchase film and pay sales tax, then I have the film developed and
pay sales tax, when I turn the developed and printed film over to the
person that requested the photos I submit a bill for reimbursement for
the cost, plus my hourly fee. Must I then bill the client sales tax on
both the cost of purchase of film and processing which I have already
paid sales tax on plus my hourly fee?

Response: The total billing is subject to sales tax. This includes
your charges for film and processing as well as your fee. We will allow
you to purchase the film and developing tax free on a resale certificate
if you give both the photographs and negatives to the client.

Question 3: The State of Texas Private Investigators and Private Security
Agencies Act, Article 4413(29bb) V.A.C.S. as amended by the 70th Texas
Legislature, Subchapter A. Section 3. exceptions paragraph (1) states "A
person employed exclusively and regularly by one employer in connection
with the affairs of an employer only and where there exists a employer-
employee relationship" does this mean that the person who is not licensed
by the act does not have to pay sales tax on any work he does, "i.e."
investigation, expenses billed to the client?

Response: This means that a person who is not required to be licensed
under the Private Investigators and Private Security Agencies Act,
Article
4413(29bb) V.A.C.S. because of Section 3(a)(1), is not required to charge
his employer sales tax on his salary. This would include expenses reim-
bursed by the employer.

Question 4: Your representative at Beaumont informed me that I must pay
sales tax on motel bills, meals, gas, etc. I do not get reimbursed for
meals, gas or telephone calls. I just get paid a hourly fee for inves-
tigation. How and must I pay sales tax on this?

Response: When you purchase items or stay in hotels, you must pay the
vendor the tax. For example, your hotel bill will include hotel occu-
pancy tax and your gasoline purchases will include fuels tax. You are
not required to separately state your expenses to your client. However,
your total charge to your client is taxable.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Al Van Allen
Tax Policy Division

Bob Bullock
Comptroller of Public Accounts
Austin, Texas 78774

November 30, 1987

Dear ****:

I just want to take a minute to acknowledge your check for the new fee
for your sales tax permit.

I do hope this letter reaches you. Your first letter was acknowledged
by our Tax Policy Section and I understand the postcard saying you'd
receive a reply was returned to us as undeliverable.

I also wrote you last week to let you know answers to your questions
would be forthcoming in the immediate future.

Sincerely,
BOB BULLOCK
Comptroller of Public Accounts