Security Services

May 2003

Security services are taxable if the service provider must be licensed by the Texas Commission on Private Security.

Taxable security services include a wide range of activities, such as investigations, providing security guards or guard dogs, monitoring certain medical alert systems, installing or monitoring burglar alarm systems, providing armored cars or armed couriers, vehicle location and tracking, unclaimed property services, and computer forensic services (locating and retrieving deleted or hidden computer files).

Not taxable, however, are the services of full-time peace officers privately employed as guards or watchmen, or medical alert services provided by hospitals for the sick or disabled.

Collecting Tax

Security service companies should collect state and applicable local sales tax on the total amount billed for the services provided. The taxable sales price includes incidental expenses (e.g., meals, lodging, car rental, insurance) billed to the customer. Local sales taxes are levied by cities, counties, special purpose districts, and transit authorities. City, county, and special purpose district taxes are based upon the location of the taxpayer's place of business, while transit authority taxes are based upon the location of the customer. Total local taxes cannot exceed 2 percent. For more information concerning local taxes, see the Guidelines for Collecting Local Sales and Use Tax.

Materials, Supplies, and Equipment

Security service providers should pay tax on all materials, supplies, and most equipment used to perform the service. An exception to this rule is when the security service transfers equipment to the care, custody, and control of the customer. In that case, instead of paying tax on the equipment, the service provider can give the supplier a resale certificate.

Reselling a Security Service

At times, a service provider may subcontract with a customer to perform a security service for a third party. The security service provider may accept a resale certificate in lieu of tax on the service, and tax will be due on the total charge billed to the third party.

Contracts with Exempt Organizations

Service providers should not charge sales tax when providing security services for a governmental agency or some nonprofit organizations. The service provider can accept an exemption certificate in lieu of tax from a nonprofit organization that has a letter from the Comptroller's office exempting it from sales tax and if the service purchased is related to the organization's exempt purpose. If you have a question about a customer's exempt status, check online at http://aixtcp.cpa.state.tx.us/exemptall/allexempt_srch.php or give us a call. The toll-free number is 1-800-252-5555. The local number is 512/463-4600.

Need More Assistance?

Email us at tax.help@cpa.state.tx.us.
Call us toll free.
Visit one of our local field offices.