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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

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