Tax Notes - Investigation and Security Services
(5/17/07)
On and after October 1, 2006, P.L. 2006, c.44 imposes tax on “Investigation and Security Services.” See N.J.S.A. 54:32B-3(b)(11).
The law defines “Investigation and Security Services” as:
The definition of “sales price” includes:
N.J.S.A. 54:32B-2(oo)
Charges for such items as travel time, meals, tolls, and mileage billed by a service provider are considered inseparable from the taxable service and are part of the receipt. N.J.S.A. 54:32B-2(oo); N.J.S.A. 54:32B-2(d). Because the service provider is providing a taxable service, all expenses incurred by the seller in providing that service (i.e., overhead costs passed on to the client) are also subject to tax regardless of how billed.
Investigation and Detective Services
Investigation and Detective Services, including detective agencies and private investigators, and fingerprint, polygraph; missing person tracing and skip tracing services are subject to tax effective October 1, 2006. Note that a license to perform such activities is not required in order for the service to be taxable. The tax is imposed on the service, regardless of who performs it.
Examples of taxable services under this section include:
Examples of services which do NOT constitute an investigative or detective service under the law and thus, are not taxable include:
Investigation and detective services are sourced for sales tax purposes where the customer makes first use of the service. First use is deemed to be where the investigative report is delivered. N.J.S.A. 54:32B-3.1.
Resale
Businesses may use a New Jersey Resale Certificate (Form ST-3) or the Streamlined Sales Tax Agreement Certificate of Exemption (uniform form) to purchase tangible personal property which is actually transferred to the purchaser in conjunction with the performance of a taxable service. N.J.S.A. 54:32B-2(e). When purchasing qualified goods or services, the service provider issues Form ST-3 or the Streamlined Sales and Use Tax Agreement Certificate of Exemption to the seller. These forms are available (View Forms)
Since investigative and security services are now subject to tax, the service provider may purchase property and services that are actually transferred to the client without the payment of tax. Examples of such property might include: photographs; video cassettes (for the purpose of surveillance); and printing and copy charges related to the report. The service provider may also provide a resale certificate to another service provider when subcontracting investigative and detective services.
Security Guard and Patrol Services
Sourcing of Security Guard and Patrol Services - Security guard and patrol services are sourced based upon where the customer makes first use of the service. N.J.S.A. 54:32B-3.1. Since security guard and patrol services are specific to an actual location, they are sourced based on the location of the property being guarded. Thus, security guard and patrol services performed at a location in New Jersey are subject to tax.
Armored Car Services
An armored car company may separately sell and charge for armored car services and cash management services. The cash management services are not taxable if they are separately stated from the taxable armored car services. It is presumed that the separate charges for cash management services and armored car service are reasonable in relation to prevailing market prices.
The following are examples of cash management services:
The following services are treated as part of the sales price for the taxable armored car service:
If the armored car service is performed entirely within the state, it is subject to sales tax. If the service is not performed entirely within this state, then the service is sourced to the customer's location. Thus, if the customer's location is in New Jersey, regardless of whether goods are picked up or delivered to that location, the service is subject to sales tax.
Security Systems Services
Installation Service
Previously, the installation of a security system (i.e., security, burglar, or fire alarms) was not subject to tax if the installation of the system resulted in a capital improvement to real property. On and after October 1, 2006, charges for the installation of security systems are specifically subject to tax. N.J.S.A. 54:32B-3(b)(12).
Thus, the installation of the following types of security systems is subject to tax on and after October 1, 2006:
Purchase of Materials
When sold to individual property owners, other vendors or to contractors, the systems are taxable. The customer may install the system himself or hire an outside contractor to install the system. Either way, the customer is subject to sales tax on the purchase of the equipment.
Monitoring
Although the new law specifically imposes tax upon alarm monitoring service, note that this service has been subject to tax since July 1, 1990, as a telecommunications service.
The law defines “Investigation and Security Services” as:
- Investigation and Detective Services, including detective agencies and private investigators, and fingerprint, polygraph; missing person tracing and skip tracing services;
- Security Guard and Patrol Services, including bodyguard and personal protection, guard dog, guard, patrol, and security services;
- Armored Car Services; and
- Security Systems Services, including security, burglar, and fire alarm installation, repair or monitoring services. [ N.J.S.A. 54:32B-2(xx)
The definition of “sales price” includes:
- The cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller;
- Charges by the seller for any services necessary to complete the sale.
N.J.S.A. 54:32B-2(oo)
Charges for such items as travel time, meals, tolls, and mileage billed by a service provider are considered inseparable from the taxable service and are part of the receipt. N.J.S.A. 54:32B-2(oo); N.J.S.A. 54:32B-2(d). Because the service provider is providing a taxable service, all expenses incurred by the seller in providing that service (i.e., overhead costs passed on to the client) are also subject to tax regardless of how billed.
Investigation and Detective Services
Investigation and Detective Services, including detective agencies and private investigators, and fingerprint, polygraph; missing person tracing and skip tracing services are subject to tax effective October 1, 2006. Note that a license to perform such activities is not required in order for the service to be taxable. The tax is imposed on the service, regardless of who performs it.
Examples of taxable services under this section include:
- Lie Detection services
- Background checks (i.e., criminal background, tenant/employee screening, resume verification)
- Insurance claim investigation (whether performed by a licensed private investigator, a third party administrator, or any other type of business)
- Online research services to track down a person
- Online or “real-life” research to track down birth parents and other long-lost people
Examples of services which do NOT constitute an investigative or detective service under the law and thus, are not taxable include:
- Charges by a business hired by an attorney to issue subpoenas and court summonses
- Skycap services performed at an airport
- Ticket and baggage checks to verify the passenger is who they claim to be
- Insurance claim adjustment services, e.g. evaluation of liability or damages, settlement negotiations, trial preparation, settlement of claim; (but see insurance claim investigation services, listed above under taxable services)
Investigation and detective services are sourced for sales tax purposes where the customer makes first use of the service. First use is deemed to be where the investigative report is delivered. N.J.S.A. 54:32B-3.1.
Resale
Businesses may use a New Jersey Resale Certificate (Form ST-3) or the Streamlined Sales Tax Agreement Certificate of Exemption (uniform form) to purchase tangible personal property which is actually transferred to the purchaser in conjunction with the performance of a taxable service. N.J.S.A. 54:32B-2(e). When purchasing qualified goods or services, the service provider issues Form ST-3 or the Streamlined Sales and Use Tax Agreement Certificate of Exemption to the seller. These forms are available (View Forms)
Since investigative and security services are now subject to tax, the service provider may purchase property and services that are actually transferred to the client without the payment of tax. Examples of such property might include: photographs; video cassettes (for the purpose of surveillance); and printing and copy charges related to the report. The service provider may also provide a resale certificate to another service provider when subcontracting investigative and detective services.
Security Guard and Patrol Services
Sourcing of Security Guard and Patrol Services - Security guard and patrol services are sourced based upon where the customer makes first use of the service. N.J.S.A. 54:32B-3.1. Since security guard and patrol services are specific to an actual location, they are sourced based on the location of the property being guarded. Thus, security guard and patrol services performed at a location in New Jersey are subject to tax.
Armored Car Services
An armored car company may separately sell and charge for armored car services and cash management services. The cash management services are not taxable if they are separately stated from the taxable armored car services. It is presumed that the separate charges for cash management services and armored car service are reasonable in relation to prevailing market prices.
The following are examples of cash management services:
- ATM cassette preparation: unloading an ATM’s cassette, verifying, counting currency, placing cash into the empty ATM cassette, reloading and sealing it.
- Change order preparation: preparing coin and currency for delivery to a customer’s location.
- Currency verifying: counting inbound and outbound currency to verify cash amounts.
- Deposit processing: counting, verifying and consolidating (wrapping, banding, rolling) customer deposits.
- Envelope processing: verifying commercial drop envelope deposits, counting currency, coin and checks, consolidating (wrapping, banding and rolling currency and coin) for deposit.
The following services are treated as part of the sales price for the taxable armored car service:
- Armored Transportation – delivery and pick up of coin and currency
- Excess Bin Charges
- Excess Bag Charges
- Excess Skid Charges
- Emergency Armored Delivery Unscheduled Trips
- Federal Reserve Trips
If the armored car service is performed entirely within the state, it is subject to sales tax. If the service is not performed entirely within this state, then the service is sourced to the customer's location. Thus, if the customer's location is in New Jersey, regardless of whether goods are picked up or delivered to that location, the service is subject to sales tax.
Security Systems Services
Installation Service
Previously, the installation of a security system (i.e., security, burglar, or fire alarms) was not subject to tax if the installation of the system resulted in a capital improvement to real property. On and after October 1, 2006, charges for the installation of security systems are specifically subject to tax. N.J.S.A. 54:32B-3(b)(12).
Thus, the installation of the following types of security systems is subject to tax on and after October 1, 2006:
- A hard wired security system, where the wires are placed within the walls
Purchase of Materials
When sold to individual property owners, other vendors or to contractors, the systems are taxable. The customer may install the system himself or hire an outside contractor to install the system. Either way, the customer is subject to sales tax on the purchase of the equipment.
Monitoring
Although the new law specifically imposes tax upon alarm monitoring service, note that this service has been subject to tax since July 1, 1990, as a telecommunications service.
