Ruling 94-10, Sales and Use Taxes / Insurance Investigation Services / Business Management and Consulting Services / Private Investigation Services
FACTS:
A company that is licensed by the Department of Insurance under Conn. Gen. Stat. §38a-792 as a "casualty adjuster" (the "Company") renders "insurance investigation" services and "adjusting" services to insurance companies in Connecticut. In general, insurers hire the Company to investigate the propriety of insurance claims and to investigate subrogation opportunities. For example, the company investigates wrongful death suits for fraudulent allegations and workers' compensation cases to identify fraud and abuse.
The specific activities in which the Company engages in rendering its insurance investigation and adjusting services include: accident reconstruction, activity checks, surveillance, research, handwriting and document analysis, conducting interviews and taking statements, conducting polygraph examinations, taking photographs, and undercover operations.
ISSUES:
Whether the Company's insurance investigation and adjusting services are taxable "business analysis, management, management consulting and public relations services" under Conn. Gen. Stat. §12-407(2)(i)(J).
Whether the Company's insurance investigation and adjusting services are taxable "private investigation, protection, patrol work, watchman and armored car services" under Conn. Gen. Stat. §12-407(2)(i)(D).
DISCUSSION:
Conn. Gen. Stat. §12-407(2)(i)(J) imposes sales and use taxes on "business analysis, management, management consulting and public relations services" ("business management services"). Conn. Agencies Regs. §12-407(2)(i)(J)-1 provides that to be taxable, business management services must relate to the service recipient's "core business" or "human resource management activities."
Subsection (h)(7) of the regulation provides that activities not generally regarded as directly related to a service recipient's core business include "the administration of, and recordkeeping related to, insurance claims against a service recipient in its capacity as an insurer..." Subsection (i) of the regulation provides that "human resource management activities" relate to the service recipient's "hiring, development, job-related training, compensation and management of personnel, employee relations, or the design and implementation of employee benefit plans."
The Company's insurance investigation and adjusting services do not relate to the service recipients' human resource activities. Nor do they relate to the service recipients' core businesses, because they address "the administration of, and recordkeeping related to, insurance claims against a service recipient in its capacity as an insurer..." Therefore, the Company's insurance investigation and adjusting services are not taxable business management services.
Turning to the second issue, Conn. Agencies Regs. §12-426-27(b)(5) provides that "private investigation, protection, patrol work, watchman and armored car services" mean and include:
providing personnel or canines to patrol or guard property; engaging in detective or investigative duties; safeguarding or maintaining a surveillance of an individual; maintaining and monitoring mechanical protective devices, such as burglar and fire alarm systems; providing armored cars for the transportation of valuables; wrapping coins; setting up a payroll; and the rendering of police services by an off-duty policeman.
Although Conn. Agencies Regs. §12-426-27(b)(5) was intended to define the scope of taxable services enumerated in Conn. Gen. Stat. §12-407(2)(i)(D), it does not further define "private investigation services" or "engaging in detective or investigative duties."
However, when Conn. Gen. Stat. §12-407(2)(i)(D) was enacted in 1975, Conn. Gen. Stat. § § 29-153 through 29-161 required persons who furnished private detective or investigative services to be licensed by the Commissioner of Public Safety. Presumably, the General Assembly was aware of this licensing requirement, and intended the phrase "private investigation services" in Conn. Gen. Stat. § 12-407(2)(i)(D), and the phrases "private investigation services" and "engaging in detective or investigative duties," to refer to those services for which a license was required under Conn. Gen. Stat. §§ 29-153 through 29-161. (See Ruling No. 94-7.)
Insurance investigators who adjust insurance claims may be required to be licensed in Connecticut, depending upon the type of claim that is adjusted. See Conn. Gen. Stat. § 38a-792 and Conn. Agencies Regs. §§ 38a-792-1 through 5. Conn. Agencies Regs. § 38a-792-1 requires casualty adjusters to be licensed in Connecticut.
With respect to insurance investigation services performed by casualty adjusters, the specificity of Conn. Gen. Stat. § 38a-792 and the regulations thereunder demonstrates that the insurance laws preempt the public safety statutes requiring private detectives, investigators, and watchmen to be licensed. Accordingly, the Commissioner of Public Safety does not license casualty adjusters who perform insurance investigation services. Therefore, since the Company's insurance investigation and adjusting services are not the types of services for which a license is required under Conn. Gen. Stat. §§ 29-153 through 29-161, those services do not constitute "private investigation services" or "engaging in detective or investigative duties" for purposes of Conn. Gen. Stat. §12-407(2)(i)(D) and Conn. Agencies Regs. §12-426-27(b)(5).
RULING:
The Company's insurance investigation and adjusting services performed under the authority of its casualty adjuster license are not taxable "business analysis, management, management consulting and public relations services" under Conn. Gen. Stat. 12-407(2)(i)(J) because they do not relate to the service recipients' human resource activities or to the service recipients' core businesses.
The Company's insurance investigation and adjusting services performed under the authority of its casualty adjuster license are not taxable "private investigation, protection, patrol work, watchman and armored car services" under Conn. Gen. Stat. 12-407(2)(i)(D). For purposes of Conn. Gen. Stat. 12-407(2)(i)(D), "private investigation services" and "engaging in detective or investigative duties" are those services for which a license from the Commissioner of Public Safety is required by Conn. Gen. Stat. §§ 29-153 through 29-161. Casualty adjusters, who also perform insurance investigation services, are licensed under the insurance statutes, not the public safety statutes.
This Ruling supersedes Rulings No. 89-219 and 89-220.
LEGAL DIVISION
June 16, 1994