A Texas investigation firm did a traffic-accident investigation in Mexico for a California client (and separately does investigations for maquilas in Juarez) — is Texas sales tax due on the investigation service?

Plain-English summary

A Texas investigation firm asked the Comptroller how Texas sales tax applies to two situations: (1) a California agency hired it to investigate a traffic accident that happened in Mexico, with most of the work done in Ojinaga, Mexico, a small amount in Presidio, Texas, and the report finalized in El Paso and sent to the California agency; and (2) several maquiladoras (maquilas) in Juarez, Mexico hired it to perform investigations at their plants, with the work mostly done in Juarez except for final reports or proposals sometimes prepared at the firm's Texas office.

The Comptroller's answer turns on where the work happens, where the purchaser and the "object" of the investigation are located, and what documentation the firm collects:

• No Texas tax is due if both the purchaser of the investigation and the object of the investigation are located outside Texas, the firm delivers the report to a point outside Texas, and the firm obtains an exemption certificate from the purchaser stating the purchaser derives no benefit and makes no use of the investigation in Texas.
• No Texas tax is also due if the purchaser is itself an investigator or other taxable-service provider who will resell the service, as long as it gives the firm a resale certificate instead of paying tax.
• Texas tax is due on investigations done in or partly in Texas if neither exception applies — and this includes the production of the final report or proposals, which the ruling treats as part of the security service itself.
• For the maquiladora investigations, the same rules apply, and the Tax Code Section 151.156 exemption for sales to maquiladoras does not help because that exemption is limited to tangible personal property, not services like investigations.

What this means for you

Investigation and security-service firms with out-of-state or foreign clients

If your client and the subject of an investigation are both outside Texas, you can avoid charging Texas tax — but only if you also deliver the finished report outside Texas AND collect an exemption certificate from the purchaser confirming no benefit or use of the investigation happens in Texas. Skipping the certificate, or doing any of the investigative work or report production inside Texas without qualifying for an exception, can trigger Texas tax.

Firms working with maquiladoras

Don't assume the maquiladora exemption in Tax Code Section 151.156 shields your investigation or security services — it only exempts tangible personal property. Investigation and similar taxable services performed for maquila clients are analyzed the same way as any other out-of-state client: based on where the work and delivery occur and what certificates you collect.

Accountants and tax professionals

This is a facts-and-circumstances ruling: the Comptroller expressly notes that "other facts, though similar, may yield different results." The key variables to document for clients in this position are (1) location of the purchaser, (2) location of the object of the investigation, (3) location of report delivery, and (4) which certificate (exemption or resale) is on file.

Common questions

Q: Does Texas tax apply if the investigation itself happens entirely outside Texas but the final report is written in Texas?
A: The ruling treats production of the final report as part of the security service, so if that step happens in Texas and none of the exceptions apply, Texas tax can still be due on that portion.

Q: What certificate do I need to avoid charging tax on an out-of-state investigation?
A: An exemption certificate from the purchaser stating that the purchaser derives no benefit and makes no use of the investigation in Texas — in addition to delivering the report to a point outside Texas.

Q: What if my client is another investigator who will resell my services?
A: Tax isn't due if that purchaser issues you a resale certificate in lieu of paying tax.

Q: Does the maquiladora exemption cover investigation services performed for a maquila?
A: No. Tax Code Section 151.156's exemption for sales to maquiladoras is limited to tangible personal property and does not extend to services.

Citations and references

Statutes cited in the letter:

• Tax Code Section 151.156 (maquiladora exemption — limited to tangible personal property, not 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/9301L1218C11

Original ruling text

January 25, 1993

Dear **:

Thank you for your recent letter to Beto Flores. I have been asked to
reply. Your facts are restated with responses below.

Facts: A California agency contracted for our services to investigate a
traffic accident that occurred in Mexico. Most of the work was done in
Ojinaga, Mexico and a small amount in Presidio, Texas. The report was
finalized in El Paso and submitted to the agency in California.

Response: Texas tax is not due if the object of the investigation and
the purchaser are both located outside Texas if: you deliver the report
to a point outside Texas, and you obtain an exemption certificate from
the purchaser of the investigation stating that he or she derives no
benefit and makes no use of the investigation in Texas

In addition, Texas tax is not due if the purchaser of the investigation
is an investigator or other provider of taxable services who will resell
the service and who issues your firm a resale certificate in lieu of tax.

Texas tax is due on the investigations done in or partially in Texas if
neither of the above applies. The production of the final report and/or
proposals arising from the investigation are part of the security service
and if done in Texas would cause Texas tax to be due in the same manner
as the investigation itself.

Facts: Several maquilas have hired our services to perform investigations
for them at their plants in Juarez. The majority of the work is done in
Juarez, with the exception of any final reports or proposals that we
might do in our **** office.

Response: Please refer to the response above. The exemption for sales to
Maquiladoras in Tax Code Section 151.156 is limited to tangible personal
property.

This opinion is rendered based on the facts you submitted. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or write.
You may reach me by calling toll free, (800) 531-5441 (ext.34680). My
direct line number is (512) 463-4680. The number for FAX transmissions is
(512) 475-0900. You may write to me in care of Tax Administration
Division.

Sincerely,

Al Van Allen
Tax Administration Division