When did a law-firm investigator's work become taxable licensed security service rather than nontaxable employee wages?

Plain-English summary

The investigator worked exclusively as an employee of one law firm. When regularly employed, the worker qualified for the employee exemption in Section 3(a)(1) of the Act and did not charge sales tax on wages.

Security services requiring a license under Section 13(a) were taxable. Once the investigator had to hold the permit, all security services provided under that permit were taxable—including charges to the law firm if the work was contract labor rather than employee labor.

The letter listed five employment factors: who controlled the work details, paid salary, withheld federal taxes, provided employment benefits, and had termination rights.

What this means for you

The historical distinction followed the real employment relationship and licensing requirement. Calling the same person an employee for one engagement and an independent contractor for another did not eliminate tax on permit-required contract work.

Common questions

Were employee wages taxable? No, when the worker qualified as a regular employee.

Was licensed part-time investigative work taxable? Yes, when it required a license under the Act.

Could work for the law firm become taxable? Yes, if performed as contract labor rather than employee labor.

Citations and references

• Texas Private Investigators and Private Security Agencies Act, V.A.C.S. art. 4413(29bb), §§ 3(a)(1), 13(a).
• 34 Tex. Admin. Code Rule 3.333 — historical security-services rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8801L0850G06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 19, 1988

Dear **:

Thank you for your follow up letter which is restated in part with
response
below.

FACTS

I am employed by one Law Firm, as a investigator. I work exclusively
for this firm. I am not required to be licensed under the Texas Pri-
vate Investigators and Private Security Agencies Act. Therefore, I am
not required to collect Texas sales tax from my employer.

Question A:

May I operate as a part time job/part time extra income. Be licensed
under the Texas Private Investigators and Private Security Agencies
Act AND COLLECT STATE OF TEXAS SALES TAX ON WORK I DO THAT DOES REQUIRE
ME TO BE LICENSED UNDER THE ACT?

Question B:

May I wear TWO DIFFERENT HATS (Operate as two separate entities)?

Not collect State of Texas Sales Tax on work that I do which I AM
NOT REQUIRED to be licensed under the ACT?

Response: When you provide security services which require a license
under section 13(a) of The Private Investigators and Private Security
Agency Act Article 4413(29bb) V.A.C.S. (The Act) you are required to
charge sales tax on those services.

If you are regularly employed by an employer in providing those services,
you are exempt from the provisions of The Act under section 3(a)(1).
Therefore, you would not be required to charge your employer sales tax on
your wages.

In determining when a person is the employer of an individual, factors
which will be considered include:

(A) who exercises direct control over the details of how the work
is performed by the employee;

(B) who pays the employee's salary;

(C) who withholds applicable federal taxes from the employee's
salary;

(D) who provides employment-related benefits such as health
insurance, eligibility to participate in a retirement plan,
sick leave, vacation, etc., to the employee; and

(E) who has the right to terminate the employment of the
individual employee.

At such time as you are required to hold a permit under section 13(a)
of The Act, you are required to charge sales tax on all the security
services you provide. This would include those charges to the law
firm or anyone else if your work is contract labor rather than em-
ployee labor.

I am enclosing Rule 3.333 for your reference.

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 our toll-
free number 1-800-531-5441. The regular number is 512/463-4600. You may
write me at the Tax Policy Division.

Sincerely,
Al Van Allen
Tax Policy Division