Texas: Tax Exempt Employee Services

Generally, a temporary employee is defined as an individual hired for less than nine months in a full or part-time position. Broadly stated, a ‘temp’ is in an employment situation where the employee is expected to remain in a position for only a set period of time. In Texas, there are specific employment characteristics that exist to qualify one for a sales tax exemption program aimed at services provided by a temporary employee:

1. The service the temporary employee is brought on board to perform is normally carried out by the host employer’s own employees.
2. All supplies/equipment required for successful execution of the temporary position are provided, excluding personal protective supplies which should be provided by the temporary employment service contracted.
3. The host employer does not rent, lease, purchase, or acquire in any capacity supplies or equipment, excluding personal protective equipment from the temporary employment agency, for the completion of the assigned position.
4. The host employer has the right to control, from a management perspective, the actions of the temporary employee to effectively conduct business.

2017 Texas Senate Bill No. 745, effective September 1, 2017, provides a clear depiction as to when an employer can take advantage of tax exemptions for “certain services provided by certain employees.” A crucial clause in this legislative adoption (4) is that the temporary employee is under the direct or general supervision of the host employer to ensure business is conducted timely, accurately, and in compliance with any and all licensing/regulatory requirements applicable to the industry in which business is conducted. If any statutory requirements are violated, the host employer will be held responsible.

Further, the provision (3) encompassing the host’s inability to rent, lease, or purchase equipment/supplies for the purpose of temporary employment is glaring for two reasons. First being, in a seasonal, local economy this prevents a small business from capitalizing on a tax incentive that will help stint short-term growth. Secondly, in an effort to expand an organization’s output capacity, the organization must be open and willing to hire new employees. If this provision were to be waived it would create a viable avenue for temporary employees to attain a full-time position that would be advantageous for both the employer and employee.

Wesley Sprecher

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Tips for the Taxpayer

Stay up-to-date with state and local tax legislation. If your company is in a temporary employment situation, check with a tax advisor to monitor exemption eligibility. Look for planning opportunities and exemptions that might be applicable to your company.

 

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.

 

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Contact us and we can provide a customized cost-effective solution to meet your company’s needs. For further information on Allyn Tax services, please contact: tax@allynintl.com.

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