Minnesota has made general updates to a Sales Tax Fact Sheet 114 that provides guidance regarding detective and security services.
Detective services are taxable when provided by those in the business of investigating for the purpose to obtain information for others and are done so by discovering, verifying, or confirming information through the acts of surveillance and interviews or through physical contacts. If expenses are directly related to and incurred while providing such services, they are also taxable regardless of whether separately stated.
Examples of taxable detective services for investigating are provided and include investigating:
Examples of nontaxable detective services include those of obtaining financial or credit information, typical attorney job duties, accounting functions performed by accountants, collection agency investigations, and licensed insurance adjuster claims. Also provided is a list of examples of nontaxable services when billed separately and not performed as part of taxable detective services.
Security services are considered taxable when intended to prevent a crime against people or property or to avoid danger or risk of loss. Examples for taxable and nontaxable services are listed. Burglar and fire alarm services are potentially taxable if used for monitoring, maintaining, testing, or responding to such alarms, while things like fire extinguisher refilling are nontaxable.
An exemption is available for certain purchases of materials used or consumed in providing taxable detective or security services. See the list of exempt items and provide a properly completed Form ST3 Certificate of Exemption to purchase these supplies exempt from sales tax provided they are used in providing taxable services. If used while providing nontaxable services, they are subject to use tax on the part of the purchaser.
Those engaged in the services industry in Minnesota should review their services provided and expenses incurred to ensure they are properly applying sales tax when considered taxable. When items are purchased tax exempt, be sure they are used for the intended purpose to claim the exemption from sales tax. If a purchaser buys an item tax free, they should evaluate whether tax should have been charged and remit use tax if taxable.
(Sales Tax Fact Sheet 114, Minnesota Department of Revenue, released January 2023)