Sales and Use Tax TAA 13A-008 Process Serving Services/Skip Tace Services
TAX: Sales and Use Tax
TAA NUMBER: 13A-008
ISSUE: Process Serving Services Skip Trace Services
STATUTE CITES: Section: 212.05, Florida Statutes (F.S.)
RULE CITE(S): Rule: 12A-l.0092, Florida Administrative Code (F.A.C.)
QUESTION:
1- Are the separately stated freestanding “service of process”
charges subject to sales tax?
2- Are the “skip tracing” services performed by [Taxpayer]
Services for [Taxpayer], that are in turn billed to customers of [Taxpayer],
subject to sales tax?
ANSWER:
1- The separately stated, freestanding service of process charges are
not subject to sales tax.
2- Skip-tracing services performed by [Taxpayer] Services for [Taxpayer]
that are in turn billed to customers of [Taxpayer] are subject to sales tax.
April 11, 2013
Re: Technical Assistance Advisement – TAA 13A-008
Process Serving Services
Skip Trace Services
XXX (Taxpayer)
Section: 212.05, Florida Statutes (F.S.)
Rule: 12A-l.0092, Florida Administrative Code (F.A.C.)
Dear XXX:
This letter is a response to your letter dated XXX, for the Department’s
issuance of a Technical Assistance Advisement (“TAA”) pursuant
to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the Department’s
position concerning the taxability of “skip trace” and locates
services performed in conjunction with process serving services. An examination
of your letter has established that you have complied with the statutory
and regulatory requirements for issuance of a TAA. Therefore, the Department
is hereby granting your request for issuance of a TAA.
Issue
At issue is whether process servicing, and “locate” and “skip-trace”
activities for process serving purposes, performed by Taxpayer or another
unrelated process server, or a licensed private investigator/detective,
are subject to sales tax.
Facts
Your petition provides the following information:
[Taxpayer] is in the business of, among other service offerings, providing
“service of process” services for law firms around the State.
Most of these law firms represent banks or other financial entities involved
in the residential mortgage foreclosure business and, because of an increased
volume of foreclosures in the last few years, [Taxpayer’s] services
have been in demand. Although [Taxpayer’s] client base consists
mostly of these types of residential mortgage foreclosure clients, it
does provide services to attorneys who pursue other types of lawsuits.
Thus, to the extent it matters, the Department’s tax analysis herein
should not be limited to the realm of residential mortgage foreclosures.
In a typical case that [Taxpayer] handles in XXX, the attorney assembles
a complaint package for its client (i.e., a plaintiff-mortgagee) and forwards
the package to [Taxpayer] The complaint package generally includes, among
other things, the complaint and summons (and for foreclosure cases, the
lis pendens) for which service of process is to me made. The first service
provided by [Taxpayer] in most instances is to pick-up the complaint package
from its law firm client and file it at the appropriate courthouse and
wait while the applicable summonses are issued.
Once the complaint package is filed and original summonses are issued,
service of process can be had on each defendant. [Taxpayer] then forwards
the papers to be served to its affiliated process servers who are independent
contractors licensed or otherwise authorized to handle service of process
in particular jurisdictions throughout the state of XXX. [Taxpayer] also
arranges for service of process nationwide to cover those instances where
a Defendant in a Florida action is (or is believed to be) located in another state.
For ease of discussion herein, assume the following hypothetical set of facts:
• [Taxpayer] receives a complaint package from its client XX (“XXX”)
which is based out of XXX;
• The complaint package is a residential mortgage foreclosure to
be filed in XXX, XXX against Defendant XXX (“Defendant XXX”);
• The Summons for Defendant XXX lists his address as XXX (“XXX”),
which is also located in XXX;
• [Taxpayer] files the complaint package with the XXX Clerk of Court,
obtains the issued Summonses from the Clerk, and routes the Summonses
for Defendant XXX to XXX County Special Process Server, XXX (“Server
XXX”).
You have provided three (3) Scenarios to demonstrate the type of activity
performed by Taxpayer:
Scenario 1:
Server First locates Defendant XXX at the XXX Street address and serves
him there. Server First will prepare and send to [Taxpayer] a “Return
of Service” (or other such similarly titled document reflecting
the manner of service or non-service on a Defendant at a particular address).
Server First bills [Taxpayer] a certain sum, and [Taxpayer] marks up the
charge to cover its various administrative and management services and
related costs, and charges XXX for the serve with no associated sales tax.
Scenario 2:
Server First cannot serve Defendant XXX at the XXX Street address. [Taxpayer]
conducts a skip trace to locate other possible addresses for Defendant
XXX and identifies an alternate address for Defendant XXX at XXX Street
in XXX (“XXX Street”), which is also in Server First’s
jurisdiction. [Taxpayer] provides the XXX Street address to Server First
and she serves him there. Server First will prepare a Return of Service
for the XXX Street address indicating “non-service” and she
will also prepare a Return of Service for the XXX Street address showing
service completed.
Server First will bill [Taxpayer] for each of these two addresses. [Taxpayer]
will add some amount of mark-up and charge XXX “per address”
attempted with no associated sales tax for either the attempted service
at XXX Street or the successful serve at XXX Street.
[Taxpayer] separately bills (in the same invoice but a different line
item) XXX for the skip trace work in locating the alternate address however
this charge will have an associated sales tax applied.
Scenario 3:
Server First cannot serve Defendant XXX at the XXX Street or XXX Street
addresses. Through its skip trace efforts, [Taxpayer] locates a third
alternate address for Defendant XXX in XXX, but service is not successful
at that XXX address. Thru [Taxpayer]’s skip trace investigation
all possible viable addresses for service have been identified and attempted,
but service cannot be accomplished on Defendant XXX.
[Taxpayer] prepares an “Affidavit of Diligent Search & Inquiry”
(“Affidavit”) to summarize all of its skip trace efforts and
delivers it to XXX. Server First and the New Jersey Server bill [Taxpayer]
for each address attempted by them (a total of 3 addresses). [Taxpayer]
adds some amount of mark-up and charges XXX “per address”
attempted with no associated sales tax for any of the 3 addresses. [Taxpayer]
separately bills (in the same invoice but a different line item) XXX for
the skip trace work conducted in preparing the Affidavit however this
charge will have an associated sales tax applied.
Notably, in all of the Scenarios above and indeed in [Taxpayer’s]
daily business, all skiptrace activities are performed for [Taxpayer]
by [Taxpayer] Services LLC (“[Taxpayer] Services”), a wholly-owned
subsidiary of [Taxpayer]. [Taxpapyer] Services is a licensed XXX private
detective agency, and it uses several types of databases when conducting
its investigations (including those containing public information and
others containing non-public information) – many of which are data
aggregators with pay-per-search structures.
[Taxpayer] performs no skip-tracking work itself. [Taxpayer] Services
does not issue any invoices to [Taxpayer] for the searches performed by
its employees, and receives no payments from [Taxpayer] for the work performed.
Accordingly, there is no sales tax paid to [Taxpayer] Services by [Taxpayer]
for skip-trace services performed by [Taxpayer] Services. (Note: Although
DOR did allow [Taxpayer] Services to register, it has consistently filed
“zero” returns as it has not collected any sales tax. Additionally,
[Taxpayer] has issued the appropriate resale certificate to [Taxpayer]
Services.)
To summarize, in all of the Scenarios above, [Taxpayer] does not charge
its clients sales tax on the separately stated freestanding service of
process fees. In Scenario 2 and 3 above where “skip-trace”
services are performed, [Taxpayer] does charge its clients sales tax on
those services.
Thus, you ask the following two (2) questions:
1. Are the separately stated freestanding “service of process”
charges subject to sales tax?
2. Are the “skip tracing” services performed by [Taxpayer]
Services for [Taxpayer], that are in turn billed to customers of [Taxpayer],
subject to sales tax?
* * *
Taxpayer’s Position
Taxpayer believes the separately stated charges for services of process
that the third party process server(s) bill to Taxpayer and that Taxpayer
bills to its customers are not subject to the sales tax.
Taxpayer also believes that that the skip tracing services performed by
[Taxpayer] Service for Taxpayer that are, in turn, billed to Taxpayer’s
customers, are subject to sales tax and Taxpayer is correct in collecting
sales tax from its clients on those services and remitting the tax to
the Department.
Applicable Law and Discussion
Every person that charges for detective, burglar protection, and other
protection services is exercising a taxable privilege. Section 212.05(1)(i)1.a.,
F.S. Detective, burglar protection, and other protection services are
any of the services enumerated in North American Industry Classification
System (NAICS) National Numbers 561611, 561612, 561613, and 561621, as
published in 2007 by the Office of Management and Budget, Executive Office
of the President. Section 212.05(1)(i)2., F.S. Taxable services include
skip tracing services. Rule 12A-1.0092(2)(a)12., F.A.C., and NAICS 561611.
However, process serving services performed by detectives, private investigators,
or others are not subject to tax when freestanding, or when separately
stated on an invoice given to a purchaser which includes taxable services.
Rule 12A-1.0092(2)(c)4., F.A.C.
Skip tracing describes the process of locating a person for any number
of purposes. Skip tracing is done by collecting as much information as
possible about the person to determine the person’s whereabouts.
Information sources used to locate the person may include phone number
database, credit reports, job application information, criminal background
check, etc.
As provided by s. 212.05(1)(i)1.a., F.S., charges for detective, burglar
protection, and other protection services are subject to sales tax. Skip
tracing services are specifically listed as a taxable service under Rule
12A-1.0092(2)(a)12., F.A.C., and listed as an investigation service under
NAICS National Number 561611. Skip tracing includes any services performed
to locate a person by the collection and analysis of information, such
as telephone directory, credit reports, and criminal background check.
Therefore, charges for skip tracing or locate services are subject to
sales tax regardless of whether the service is performed by a licensed
private detective agency of some other person.
When a person performs skip tracing services and process serving services,
the transaction involves both taxable and nontaxable services. Under s.
212.02(12), F.S., a “[p]erson” includes “any individual,
firm, copartnership, joint adventure, association, corporation, estate,
trust, business trust, receiver, syndicate, or other group combination
acting as a unit . . ..” The person providing the services must
separately state the taxable and nontaxable charges for the process serving
services to remain nontaxable, otherwise, the entire transaction will
be subject to tax. Rule 12A-1.0092(3)(a), FA.C. The answers to your two
(2) questions are as follows: 1. Are the separately stated freestanding
“service of process” charges subject to sales tax?
Answer: The separately stated, freestanding service of process charges are not
subject to sales tax.
2. Are the “skip tracing” services performed by [Taxpayer]
Services for [Taxpayer], that are in turn billed to customers of [Taxpayer],
subject to sales tax?
Answer: Skip-tracing services performed by [Taxpayer] services for [Taxpayer]
that are in turn billed to customers of [Taxpayer] are subject to sales tax.
This response constitutes a Technical Assistance Advisement under s. 213.22,
F.S., which is binding on the Department only under the facts and circumstances
described in the request for this advice, as specified in s. 213.22, F.S.
Our response is predicated upon those facts and the specific situation
summarized above. You are advised that subsequent statutory or administrative
rule changes or judicial interpretations of the statutes or rules upon
which this advice is based may subject similar future transactions to
a different treatment from that which is expressed in this response.
You are further advised that this response, your request, and related
backup documents are public records under Chapter 119, F.S., and are subject
to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to
protect confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement, the backup
material and this response, deleting names, addresses and any other details
which might lead to identification of the taxpayer. Your response should
be received by the Department within 10 days of the date of this letter.
Sincerely,
Mr. Joseph D. Franklin III
Tax Law Specialist
Technical Assistance and Dispute Resolution
Ph 850/717-6729
Control # 134668