The Tax Code defines a taxable security service as any service for which a license is required under the Occupations Code Section 1702.101, Investigations Company License Required, or Section 1702.102, Security Services Contractor License Required; Scope of License. These licenses are administered by an advisory committee for the Texas Department of Public Safety.
Taxable security services include the following:
Nontaxable security services include the following:
If you provide a taxable security service, you must collect state and all applicable local sales tax on the total amount billed for your services unless you receive a resale or exemption certificate (PDF) from the purchaser. The taxable sales price includes expenses such as meals, lodging, car rental and insurance billed to the customer. For more information concerning local taxes, see Publication 94-105, Local Sales and Use Tax Collection – A Guide for Sellers.
When nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services is more than 5 percent of the total charge, the total charge is presumed to be taxable.
You can overcome this presumption by separately stating a reasonable charge for the taxable services when the transaction occurs. Your records must support the apportionment between taxable and nontaxable services based on the cost of providing the service, or a comparison to the normal charge for each service if provided alone.
Sales and use tax is due on materials, supplies and equipment used to provide a taxable security service. For example, a company that monitors alarm systems must pay tax on purchases of computer equipment used to provide their service.
You can give a resale certificate (PDF) instead of paying tax only on those goods whose care, custody and control are transferred to the customer as a part of the service. For example, if you copy the results of an investigation to a flash drive to give to your customer, you can buy the blank flash drive tax free with a resale certificate.
You can also give a resale certificate instead of paying tax on a service that is an integral part of your taxable security service. For example, if you purchase the services of a credit reporting service as part of a background check, you can give the credit reporting service a resale certificate instead of paying tax on the charges.
If you provide nontaxable security services, you owe tax on all goods and services purchased to perform those services.
If you purchase a security service from a third-party vendor and resell that service to your customer, you can give a resale certificate to the third-party service provider instead of paying tax. You will then collect tax on the total amount charged to your customer for the security service.
Security services provided to a government agency are not taxable.
A nonprofit organization exempt from sales tax must give you an exemption certificate (PDF) to claim sales tax exemption. Security service providers can verify that an organization is exempt from sales tax using our exempt entity search or by calling us at 800-252-5555. Other nonprofit organizations must pay sales tax on taxable security services.