Which of the specific services a paralegal/legal-assistance company provides (research, word processing, witness location, trial preparation, document organization) are taxable, and how should billing work if only some services are taxable?

Plain-English summary

A company providing paralegal/legal-assistance services asked the Comptroller whether five specific services it offered were subject to Texas sales tax. The Comptroller addressed each service separately:

1. Research, reviewing records, analysis — research conducted in the public domain is taxable as an information service under Rule 3.342.
2. Word processing — typing summaries of medical records, depositions, etc., is taxable as a data processing service under Rule 3.330.
3. Witness location — taxable only if the activity requires a license from the Texas Board of Private Investigators.
4. Trial preparation — the word-processing component of trial preparation is taxable.
5. Organization of documents — computerizing documents is taxable as a data processing service.

The Comptroller recommended that the company bill these services separately from any nontaxable services. If the company instead issues a lump-sum bill covering both taxable and nontaxable items, and the taxable portion exceeds 5% of the total charge, the entire charge becomes taxable.

What this means for you

Paralegal, litigation-support, and legal-assistance businesses

Most of the day-to-day services this kind of business performs — research and record review, word processing of summaries, document organization/computerization, and word processing for trial preparation — are taxable in Texas as information services or data processing services. Witness-location services are taxable only when the work requires a private investigator's license.

Businesses that bill a mix of taxable and nontaxable services

Separate, itemized billing matters. If you lump taxable and nontaxable services into a single charge and the taxable share is more than 5% of that lump sum, the Comptroller will treat the whole bill as taxable — not just the taxable portion.

Businesses using subcontracted witness-location services

Check whether the specific witness-location work requires licensure under the Texas Board of Private Investigators and Private Security Agencies; that licensing requirement is what determines taxability of this particular service, according to this letter.

Common questions

Q: Is legal research taxable in Texas?
A: Research and record review conducted in the public domain is taxable as an information service under Rule 3.342, according to this letter.

Q: Is word processing of deposition or medical-record summaries taxable?
A: Yes — the letter treats this as a taxable data processing service under Rule 3.330.

Q: Is witness-location work always taxable?
A: No. Per this letter, it's taxable only if performing the work requires a license from the Texas Board of Private Investigators and Private Security Agencies.

Q: What happens if I bill taxable and nontaxable services together as one lump sum?
A: The letter states that if the taxable portion of a lump-sum billing exceeds 5% of the total, the entire charge becomes taxable — so separate billing for taxable and nontaxable services is recommended.

Q: Can I rely on this letter for my own business?
A: No. This opinion is based on the facts the taxpayer presented, and different or additional facts could change the outcome.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.342 (taxable information services)
• 34 Tex. Admin. Code Rule 3.330 (taxable data processing services)

Other references in the letter:

• Texas Board of Private Investigators and Private Security Agencies, 313 East Anderson Lane, Suite 200, Austin, TX 78752 (license requirement referenced for witness-location 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/9603L1404D11

Original ruling text

March 6, 1996

Dear **:

In your letter, you asked about the taxability of services provided by
your company.

I have listed the services provided by your company and responded to the
taxability of each service as follows:

1) Research, reviewing records, analysis, - research in the public domain
is taxable as information services [Rule 3.342].

2) Word processing - typing summaries of medical records and depositions,
etc., is taxable as data processing services [Rule 3.330]

3) Witness location - taxable if a license is required by the Texas
Board of Private Investigators.

4) Trial preparation - word processing is taxable

5) Organization of documents - computerization of documents is taxable
as data processing services.

Our suggestion is that these services be billed separately, if the taxable
portion of a lump-sum billing exceeds 5% then the total charge is taxable.

The address of the Texas Board of Private Investigators and Private
Security Agencies is 313 East Anderson Lane, Suite 200, Austin, TX 78752.
The telephone number is 512-463-5545.

This opinion is based upon 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 extension 50892. The direct
line is 512/475-0892. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,

John J. Fitzgibbons, CPA
Tax Policy

NOTE: Previous Accession Number 9603120L