Is a paper-and-pencil personality profile testing service, used by employers to screen job applicants for honesty and suitability, taxable in Texas as a security service?

Subject

Pre-Employment Psychological Testing Services (Paper and Pencil) to Determine Honesty and Suitability for Employment

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1242G10

Plain-English Summary

This is a short follow-up letter, dated June 18, 1993, from David Somerville of the Comptroller's Tax Administration Division, continuing a discussion begun in an earlier June 11th letter about a client who provides paper-and-pencil personality profile testing services in Texas.

The letter confirms that, as of the date of the letter, the client's paper-and-pencil personality profile service is taxable as a "security service" under Rule 3.333(a). But the letter also flags an upcoming change: effective August 30, 1993, House Bill 161 (passed by the Texas Legislature) removes the requirement for a license under the Private Investigators and Private Security Agencies Act (Texas Civil Statutes Article 4413(29bb)) for a person engaged in psychological testing or other testing and interviewing services — including attitude, honesty, intelligence, personality, and skills testing — performed for pre-employment purposes, as long as that person doesn't also perform other services that require a license under that Act.

Because the taxability of the service as a "security service" was tied to the licensing requirement, the letter concludes that once the client no longer needs a Private Investigators and Private Security Agencies Act license (effective August 30, 1993), the paper-and-pencil personality profile service will no longer be taxable as a security service, effective that same date. The letter closes by noting the opinion is based on the facts presented and could change if the facts are different, and provides contact information for follow-up questions.

What This Means For You

If you currently provide pre-employment personality/honesty testing services

Under this letter, paper-and-pencil personality profile testing was taxable as a security service under Rule 3.333(a) as of June 1993. If you were collecting or remitting tax on this basis before August 30, 1993, that treatment was correct for that period according to this letter.

If you provide these services on or after August 30, 1993

Once House Bill 161 removed the Private Investigators and Private Security Agencies Act license requirement (effective August 30, 1993) for pre-employment psychological, attitude, honesty, intelligence, personality, or skills testing and interviewing — provided you don't also perform other services requiring a license under that Act — this letter concludes the service is no longer taxable as a security service from that date forward.

If your business also performs other licensed security services

The exemption from the licensing requirement described in House Bill 161 only applies if the person "does not perform any other service that requires a license under this Act." If your business performs other services that still require a Private Investigators and Private Security Agencies Act license, this letter's conclusion about losing security-service tax status may not apply to you in the same way — you should confirm your specific fact pattern with the Comptroller.

If you have questions about how this applies to your situation

This opinion is expressly based on the facts as presented by the specific taxpayer; the letter states the opinion may change if the facts are different. The letter provides contact information (toll-free 1-800-531-5441, ext. 5-0030, or direct line 512/475-0030) for taxpayers with questions.

Q&A

Q: Was paper-and-pencil personality profile testing taxable in Texas as of June 1993?
A: Yes. The letter confirms the client's paper-and-pencil personality profile service was currently taxable as a security service under Rule 3.333(a).

Q: Does that stay true forever?
A: No. The letter states that effective August 30, 1993, the service is no longer taxable as a security service, because House Bill 161 removes the licensing requirement under the Private Investigators and Private Security Agencies Act for this type of pre-employment testing.

Q: What does House Bill 161 change?
A: It removes the requirement for a license under the Private Investigators and Private Security Agencies Act (Texas Civil Statutes Article 4413(29bb)) for a person engaged in psychological testing or other testing and interviewing services — including attitudes, honesty, intelligence, personality, and skills — for pre-employment purposes, as long as the person doesn't perform other services requiring a license under that Act.

Q: Why does the licensing change affect the sales tax result?
A: Because the service's taxability as a "security service" was tied to the definition in Rule 3.333(a), which the letter connects to the licensing requirement. Once the client no longer needs a license under the Private Investigators and Private Security Agencies Act, the letter concludes the personality profile service is no longer taxable as a security service.

Q: What date does the change take effect?
A: August 30, 1993 — both the licensing exemption under House Bill 161 and the resulting change in taxability take effect on that date, according to the letter.

Q: Is this letter binding on other taxpayers?
A: The letter states its opinion is based on the facts presented and may change if the facts are different, and it was issued to a specific taxpayer/representative whose identifying details are redacted here. Under 34 Tex. Admin. Code Rules 3.1 and 3.10, letters on STAR can be the basis of detrimental reliance only for the taxpayer to whom the letter was directly issued.

Original ruling text

June 18, 1993

Dear ***:

I would like to follow up on my June 11th letter concerning your
client who provides paper and pencil personality profile services in
Texas.

As I stated before, your client's paper and pencil personality profile
service is currently taxable as a security service. However,
effective August 30, 1993, House Bill 161 passed by the Texas
Legislature will no longer require a license from the Board of
Private Investigators and Private Security Agencies for:

. . .a person engaged in the business of psychological testing or other
testing and interviewing services (to include but not limited to
attitudes, honesty, intelligence, personality, and skills) for pre
employment purposes, if the person does not perform any other service
that requires a license under this Act.

Security service is defined in Rule 3.333(a) which I previously sent
to you. If your client no longer is required to have a license under the
Private Investigators and Private Security Agencies Act, 13,

Texas Civil Statutes, Article 4413(29bb) on August 30, 1993, his or her
paper and pencil personality profile service is no longer taxable as
a security service, effective that date.

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9308003L.5 and/or 9308003L