Is a vehicle tracking/personal security monitoring service, sales of the tracking device itself, and 'extra' per-minute services (like remote unlock or directions) subject to Texas sales tax?

Subject

Motor Vehicle And Personal Security Tracking Device — Installed In Car Connected To Cellular Phone

Plain-English summary

A new company that manufactured, sold, and monitored a personal security and vehicle tracking device asked the Comptroller how Texas sales tax applied to its business. The device is installed in a customer's car and connected to a cellular phone; if the car is stolen or the driver presses a panic switch, the car calls the company's response center, which pinpoints the car's location and notifies police and the owner. The company also planned to offer extra pay-per-use services such as directions, remote door unlocking, vehicle location, and trip planning.

The Comptroller's answer split the offering into several taxable categories:

• Monitoring service: Because installing and monitoring the device requires a license under the Texas Private Investigators and Private Security Agencies Act, the monitoring charges are taxable as a Security Service.
• Information-type extras: Per-minute charges for services like giving directions or checking hotel availability are taxed as information services.
• Remote-activation extras: Charges for using telecommunications to activate electronic locks, horns, or lights are taxed as telecommunications services, but only if the transmission originates in Texas; otherwise they are not subject to Texas tax.
• Device sales: Sales of the tracking device itself are exempt from Texas sales tax when shipped to a location outside Texas. Devices shipped to a Texas address are subject to Texas state and local (city) sales tax, and to transit authority (MTA) sales tax if shipped within that authority's boundaries; other local use taxes may also apply.

What this means for you

Companies selling or monitoring vehicle-tracking/security devices

If your monitoring or installation function requires a private investigator or security license under Texas law, expect your monitoring charges to be treated as taxable security services, not as a nontaxable service unrelated to sales tax.

Businesses offering add-on, pay-per-use features

Break out your extra services by type: informational services (directions, availability lookups) are taxed as information services, while remote-activation commands sent over telecommunications networks are taxed as telecommunications services only when the transmission originates in Texas.

Sellers shipping tracking devices to customers

Track the ship-to destination for each device sale. Devices shipped out of state are exempt from Texas tax; devices shipped within Texas owe state tax plus any applicable city and transit-authority (MTA) local taxes, and possibly other local use taxes.

Common questions

Q: Is monitoring a stolen-vehicle/panic-alert tracking service taxable in Texas?
A: Yes, per this letter, because installing and monitoring the device requires a security/private investigator license, the charges are taxable as a Security Service under Tex. Tax Code § 151.0101(a)(14).

Q: Are per-minute extra services like directions or remote unlocking taxed the same way?
A: No. Directions and similar information look-ups are taxed as information services. Remote commands (unlocking doors, horns, lights) are taxed as telecommunications services, but only if the transmission originates in Texas.

Q: If I ship the tracking device to a customer outside Texas, do I owe Texas sales tax?
A: No, per this letter, sales of the device shipped to locations outside Texas are exempt from Texas sales tax; devices shipped within Texas are subject to state and local (including MTA) sales tax.

Citations and references

Statutes:

• Tex. Civ. Stat. Art. 4413(29bb) (Private Investigators and Private Security Agencies Act), Sec. 13
• Tex. Tax Code § 151.0101(a)(14) (taxable security services)
• Tex. Tax Code § 151.0075 (definition of security 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/9605L1409F11

Original ruling text

May 7, 1996

Dear *****:

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

We are a new company in the business of manufacturing, selling and monitoring a
personal security and vehicle tracking device. The device is installed in your
car and connected to your cellular phone. In the event that your car is stolen
or you press the panic switch, your car calls our Response center which then
gets a computerized map of the location of your car as well as personal
information about the car and who should be driving it. This is done via the
***** satellite system. After verifying that an event has indeed
occurred, our Response Center notifies the police and contacts the owner. This
system will work nationwide, yet it is monitored from our home office in CITY A.

Is the monitoring service taxable in Texas or at the customer's location? If
we sell additional services on a cost per usage basis, such as giving
directions, unlocking the customer's doors, locating the customers vehicle,
trip planning services, etc., would these be taxable and by whom, Texas or
the state where the customer lives?

If any of the above mentioned "extra services" are charged on a "per minute"
basis, does this complicate matters by making us fall under the new
Telecommunications law?

Response: I took the liberty of faxing a copy of your
letter to the Texas Board of Private Investigators. The function of installing
and monitoring the devices requires a license under Texas Civil Statutes,
Article 4413(29bb), Private Investigators and Private Security Agencies Act,
sec. 13. That has the effect of rendering those charges subject to sales tax
as Security Services under Tax Code Section 151.0101(a)(14) and as defined in
Section 151.0075.

Per minute charges for providing information such as
directions or hotel availability are taxed as information services. Charges
for using telecommunications technology to activate electronic vehicle locks,
horns, and lights are taxed as telecommunications services if the transmissions
originate in Texas. Otherwise, they are not subject to Texas tax.

Sales of vehicle tracking devices shipped by your firm
to locations outside Texas are exempt from Texas sales tax. The same sales
shipped to points within Texas are subject Texas State and CITY A city sales
tax. CITY A MTA sales tax is due on vehicle tracking devices shipped to points
within that authority, but, not on vehicle tracking devices shipped to points
outside the MTA. Other local use taxes may also be due. I am enclosing a copy
of our bulletin, "Guidelines for Collecting Local Sales and Use Tax" for your
reference.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Al Van Allen
Tax Policy Division

NOTE: Previous Accession Number 9605198L