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RULE §3.333Security Services

(a) Security service. Any service for which a license is required under Occupations Code, §1702.101 or §1702.102, Private Security Chapter, and includes any service provided within the scope of the required license as an investigations company, guard company, alarm systems company, armored car company, courier company, guard dog company, security services contractor, private security officer, detective service, private investigator, locksmith company, or private security consultant company.

(b) Permit required. A provider of security services must obtain a Texas sales and use tax permit and collect tax on the total amount charged for security services, or accept a properly completed resale or exemption certificate in lieu of collecting tax. See §3.285 of this title (relating to Resale Certificate; Sales for Resale) and §3.287 of this title (relating to Exemption Certificates).

(c) Employees. Security services performed by an employee for his employer in the regular course of business, within the scope of the employee's duties, and for which the employee is paid his regular wages or salary are not taxable.

(d) Temporary security service personnel. A security service is taxable even when provided on a temporary basis unless:

  (1) the security service is performed by a temporary help service for an employer to supplement the employer's existing security service personnel on a temporary basis;

  (2) the security service is normally performed by the employer's own employees;

  (3) the employer provides all supplies and equipment necessary; and

  (4) the temporary employee is under the direct or general supervision of the employer to whom the security service is furnished.

(e) Security services provided in Texas. Charges for providing security service to property or persons located in Texas are subject to Texas sales tax. Unless a customer claims multistate benefit as provided in subsection (p) of this section, if any portion of the security service originates in Texas, Texas sales tax is due even though a portion of the service may be performed in another state. Credit will not be allowed against Texas sales tax for use tax imposed by another state when the service benefit location is in Texas. Detective and investigation services of corporate locations or premises located outside Texas are not taxable if the investigation is unrelated to any investigation of corporate locations in Texas.

(f) Credit for security services originating in another state. If a security service originates in another state and sales tax is legally paid on that service in the other state, credit against the Texas use tax will be allowed. See §3.338 of this title (relating to Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers).

(g) Resale certificates.

  (1) A seller of a security service may issue a resale certificate in lieu of tax to a supplier of tangible personal property only if care, custody, and control of the property will be transferred to the service provider's client. For example, a security service provider purchases a DVD to transfer the results of an investigation to a customer. The DVD is transferred to the customer, and the customer owns and uses the DVD to review the results of the security service. The security service provider may purchase the DVD tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the DVD and for the services.

  (2) A resale certificate may be issued for a taxable service if the buyer intends to transfer the service as an integral part of a taxable service. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered.

  (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property that will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will be exempt only to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property.

(h) Sales price, unrelated services.

  (1) Providers of taxable security services must collect state and all applicable local sales tax on the total sales price of the services provided unless they receive a properly completed resale or exemption certificate from the purchaser.

  (2) The total sales price includes charges for services or expenses directly related to and incurred while providing a taxable security service, even if billed separately. Examples include charges for meals, telephone calls, hotel rooms, or airplane tickets.

  (3) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The service provider may overcome the presumption by separately stating to the customer at the time the transaction occurs a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The service provider's books must support the apportionment between taxable and nontaxable activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for nontaxable services is unreasonable when the overall transaction is reviewed, the comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services.

  (4) Charges for services or expenses directly related to and incurred while providing a taxable service are taxable and may not be separated for the purpose of excluding those charges from the tax base. Examples include charges for meals, telephone calls, hotel rooms, or airplane tickets.

  (5) A service will be considered unrelated, and thus not part of the sales price of a taxable security service, if:

    (A) it is not a security service, nor a service taxable under other provisions of Tax Code, Chapter 151;

    (B) it is of a type that is commonly provided on a stand-alone basis; and

    (C) the performance of the unrelated service is distinct and identifiable. Examples of unrelated services that may be excluded from the tax base include a service for which no license is required, such as coin-wrapping services by a courier or armored car service, or providing court testimony, training, or filing legal documents.

(i) Excepted persons. Persons excepted from the licensing requirements of the Private Security Act are not providing security services subject to the sales tax because they are not required to hold a license to provide their services. Examples include, but are not limited to:

  (1) persons employed exclusively and regularly by one employer in connection with the affairs of the employer;

  (2) officers or employees of the United States, this state, or a political subdivision of either, while engaged in the performance of official duties;

  (3) persons who have full-time employment as peace officers as defined by Code of Criminal Procedure, Article 2.12, and who satisfy the requirements of Occupations Code, §1702.322, and who receive compensation for private employment on an individual or an independent contractor basis as patrolmen, guards, or watchmen;

  (4) persons who provide telematics services (a service that may rely on global positioning system satellite data to fix the exact location of a vehicle) as defined in Occupations Code, §1702.332(a), and who have satisfied exemption requirements as set out in Occupations Code, §1702.332(c);

  (5) persons who sell burglar alarm or other protective devices exclusively over-the-counter, by mail order or by e-commerce;

  (6) persons who sell or install automobile burglar alarm devices;

  (7) persons set out in Occupations Code, §1702.331(b), who provide personal emergency response systems as defined in Occupations Code, §1702.331(a), that are not part of a combination of alarm systems that include burglar alarm or fire alarm; and

  (8) a person or firm licensed as an accountant or accounting firm under Occupations Code, Chapter 901, an owner of an accounting firm, or an employee of an accountant or accounting firm.

(j) A charge for using a slim-jim or similar device to open a locked vehicle is not taxable, even when the service provider is a licensed locksmith.

(k) Taxable under other provisions. Persons whose activities are not defined as security services may nonetheless be performing a service that is taxable under other provisions. Examples include, but are not limited to:

  (1) persons engaged in the business of obtaining and furnishing credit information. See §3.343 of this title (relating to Credit Reporting Services);

  (2) insurance adjusters, insurance investigators, and/or claims processors performing services in connection with a policy of insurance. Although not taxable as security services, some insurance services are subject to sales and use tax. See §3.355 of this title (relating to Insurance Services);

  (3) persons who install electronic access control devices, as that term is defined in Occupations Code, §1702.002(a)(6-a) in existing nonresidential improvements to real property. Although not taxable as a security service, the installation of such a device in an existing nonresidential real property improvement may be taxable as nonresidential real property repair, remodeling or restoration. See §3.357 of this title (relating to Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance).

(l) Undercover agents. The fact that a security service provider may be performing his services by furnishing an undercover agent will not affect the applicability of sales tax to the service transaction between the employer and the consumer. The employer of the undercover agent is considered to be providing security services to a client, and that transaction is subject to the sales tax.

(m) Local taxes. Local sales and use taxes (city, county, transit authority, and special purpose district) apply to services in the same way as they apply to tangible personal property. A service provider must collect local sales taxes if the service provider's place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. If the place of business is outside such a jurisdiction but the service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is responsible for collecting them. For information on the collection and reporting responsibilities of providers and purchasers of taxable services, see §3.334 of this title (relating to Local Sales and Use Taxes).

(n) Use tax. If a seller of a service is not engaged in business in Texas or in a specific local taxing jurisdiction and is not required to collect Texas state or local tax, it is the Texas customer's responsibility to report the use tax directly to this office.

(o) Service benefit location. If the security service provider is in Texas and the customer is located only in Texas, Texas tax is due, and must be collected by the security service provider.

(p) Service benefit location--multistate customer.

  (1) To the extent a security service is provided for a separate, identifiable segment of a customer's business, the service is presumed to benefit the location where that part of the customer's business is conducted.

  (2) To the extent the use of the service cannot be assigned to an identifiable segment of a customer's business, the service is presumed to be used to support the administration or operation of the customer's business generally. The security service is presumed to be used at the customer's principal place of business. The principal place of business means the place from which the trade or business is directed or managed.

  (3) If a multistate customer claims that part of the security service benefits the customer's business at locations both within and outside the state, the customer must provide the security service provider with an exemption certificate in lieu of tax. It will then be the customer's responsibility to report the tax to this office for that portion of the security service that benefits Texas locations. The security service will not be taxable to the extent the customer can establish benefit outside Texas. A multistate customer may use any reasonable method for allocation that is supported by business records.

  (4) A security service provider who accepts an exemption certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates.

Source Note: The provisions of this §3.333 adopted to be effective March 24, 1988, 13 TexReg 1221; amended to be effective November 13, 1989, 14 TexReg 5786; amended to be effective November 26, 1993, 19 TexReg 84; amended to be effective March 23, 1995, 20 TexReg 1749; amended to be effective February 24, 2010, 35 TexReg 1468; amended to be effective February 21, 2011, 35 TexReg 1159; amended to be effective June 25, 2015, 40 TexReg 3999

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