Must a temporary-staffing agency collect sales tax on its billings when its workers perform taxable services under the customer's control?

Plain-English summary

Durham Temporaries, Inc. supplies manpower to companies that use the workers to perform services for their own customers. The laborers are on Durham's payroll and paid by Durham (regardless of whether Durham gets paid), but once a worker shows up, the customer determines the work, controls its location and duration, and has exclusive control of how it's performed. Durham asked whether it must collect sales tax on its billings.

The Department held Durham generally need not collect tax on these receipts — but drew important lines.

• The workers become the customer's "special employees." Section § 1105(c) taxes various services (e.g., maintaining/servicing/repairing real property under § 1105(c)(5)). When Durham supplies a laborer to, say, a painting contractor, Durham isn't performing the painting. Although the laborers are Durham's general employees, in doing the job they become special employees of the customer — so it's the customer that renders the taxable service and must collect the tax. This turns on the customer's control of the worker (Brooks v. Chemical Leaman Tank Lines; 36 N.Y. Jur., Master and Servant). So Durham's receipts here are not taxable.
• But if the agency itself performs the service, it's taxable. Where a company provides laborers directly to maintain, service or repair a customer's real property, it is rendering a service whose receipts are generally taxable under § 1105(c)(5). Durham must keep records to separate such taxable receipts from the non-taxable ones.
• The 30-day interior-cleaning exclusion. Section 1105(c)(5) itself excludes receipts from interior cleaning and maintenance performed on a regular contractual basis for at least 30 days — but not window cleaning, pest control or trash removal. Provide those qualifying services under a 30-day-plus regular contract and the receipts aren't taxable.
• Separately state, or the whole bill is taxable. If a contract or bill doesn't separately state the charges for taxable versus nontaxable services, the entire charge is taxable (20 NYCRR § 527.7(c)(3)(ii)).

What this means for you

Lending workers under the customer's control isn't the same as selling a taxable service. If your staffing agency just supplies laborers whom the client directs and controls, the client — not you — is performing any taxable service. Your billings for the labor generally aren't taxable, because the workers act as the client's "special employees."

Control is the deciding fact. The analysis hinges on who controls the manner and details of the work. If the client sets the task and supervises how it's done, that points to special-employee status and non-taxable staffing receipts. If instead your agency contracts to perform the service and directs the work, you're the service provider — and taxable.

Watch the § 1105(c)(5) real-property line and separate your billing. Directly providing crews to clean, maintain, service or repair real property is generally taxable — with a carve-out for regular interior cleaning/maintenance under a 30-day-plus contract (not window/pest/trash work). And always separately state taxable vs. nontaxable charges; if you don't, New York taxes the entire bill.

Common questions

Q: We're a temp agency that supplies workers the client directs and controls. Do we tax our billings?
A: Generally no. The workers become the client's "special employees," so the client renders any taxable service and collects the tax; your staffing receipts aren't taxable. The key is the client's control of the work.

Q: When would our staffing receipts be taxable?
A: When your agency itself provides crews to maintain, service or repair real property — that's a taxable service under § 1105(c)(5) (subject to the 30-day interior cleaning/maintenance exclusion).

Q: We bundle taxable and nontaxable work on one invoice. Any risk?
A: Yes. If you don't separately state the taxable and nontaxable charges, the entire charge is taxable under 20 NYCRR § 527.7(c)(3)(ii). Break them out.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c) — tax on receipts from enumerated services
• Tax Law § 1105(c)(5) — tax on maintaining, servicing or repairing real property; exclusion for 30-day-plus regular interior cleaning and maintenance (other than window cleaning, pest control, trash removal)
• 20 NYCRR § 527.7(c)(3)(ii) — where taxable and nontaxable charges aren't separately stated, the entire charge is taxable

Other authorities referenced:

• Brooks v. Chemical Leaman Tank Lines, Inc., 71 A.D.2d 405
• 36 N.Y. Jur., Master and Servant § 3

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(30)S
Sales Tax
July 7, 1983

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810319A

On March 19, 1981 a Petition for Advisory Opinion was received from Durham Temporaries,
Inc., 180 Franklin Street, Buffalo, New York 14202.
Petitioner is in the business of providing manpower to companies which render various
services to their customers, some of which services are subject to State and local sales taxes.
Petitioner inquires as to the nature of its obligation, if any, to collect sales tax on its receipts.
Petitioner states that it "lends" its employees to its customers, which utilize these individuals
in performing services for their own customers. The individuals in question are on Petitioner's
payroll and receive their wages, computed on an hourly basis, directly from Petitioner. Petitioner
obtains its receipts from its billings to its clients. Its payments to its employees are in no way
contingent upon its receiving payment from its customers. Petitioner states that it is "responsible for
all employment related taxes, contributions, and benefit costs under applicable federal and state
statutes."
Petitioner responds to requests for laborers made by its customers. Upon such a request's
being made, Petitioner contacts an employee and instructs him or her to meet with the customer at
an appointed time and place. While the customer may request personnel with specified types of
experience, Petitioner is not made cognizant of the specific job at which the laborer will be
employed. The customer thereupon determines the nature of the work to be done, controls the
location and duration of the work, and has exclusive control of the manner in which the work is
performed. Petitioner states that "once Durham has made contact with its employee by phone and
given the employee instructions concerning where to show up at a particular point in time, Durham's
contact with said employee ceases until it is time to pay him against a time sheet furnished to
Durham by the customer."
Section 1105(c) of the Tax Law imposes the State sales tax on the receipts from the sale of
a variety of services. An example would be the service of "maintaining, servicing or repairing real
property," subject to tax under section 1105(c)(5). The question raised here is whether, where
Petitioner supplies a laborer to a painting contractor who thereupon employs the laborer in a painting
job, Petitioner must collect sales tax on its receipts from the painting contractor. Petitioner would
be required to collect tax if it were providing the service of painting. Under the facts described
above, however, such is not the case. Although the laborers involved may be employees of Petitioner
in a general sense, in their performance of their labors they become special employees of Petitioner's
customer; that is, with respect to the job in question they are employees of such customer, and it is
such customer which renders the taxable service of painting real property. It is thus such customer,
and not Petitioner, which is required to collect tax. The conclusion arrived at here turns on the

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-83(30)S
Sales Tax
July 7, 1983

fact of the customer's control of the actions of the laborer. As was stated in Brooks v. Chemical
Leaman Tank Lines, Inc., 71 A.D. 2d 405,
One who is in the general employ of one party may be in the
special employ of another despite the fact that the general employer
is responsible for the payment of wages, has the power to hire and
fire, has an interest in the work performed by the employee, maintains
Workers' Compensation for the employee and provides some, if not
all, of the employee's equipment. Relevant in resolving the issue is
who controls the employee's manner of working and the details of the
work.
To the same effect is the following discussion:
One who is the general servant of another may be loaned or
hired by his master to a third person for some special service so as to
become, as to that service, the servant of such third person, the test
being whether, in the particular service which he is engaged to
perform, he continues liable to the direction and control of his master
or becomes subject to that of the person to whom he is loaned or
hired. If the general employer's contract is to furnish an employee
who will do the specified work under the supreme direction and
control of the person for whom the work is to be done, the workman
becomes for the time being the servant of the person to whom he is
furnished. 36 NY Jur, Master and Servant § 3.
Accordingly, Petitioner is not required to collect sales tax on its receipts derived from the
business conducted as described above.
Petitioner also raises the following two questions:
"If a company has a contract which is to be performed over a period of more than 30 days,
is the contract excludable from sales tax if the maintenance is not performed on a continuous daily
basis for that period?"
"If DURHAM TEMPORARIES, INC. provides laborers to the customer under a maintenance
contract for a period of more than 30 days, would DURHAM TEMPORARIES, INC. be responsible
for sales tax if the customer used the laborers for other than the specified maintenance referred to
in the contract?"
Where a company provides laborers directly to a customer for the purpose of maintaining,
servicing or repairing real property or land of such customer, it will be rendering a service the
receipts from which are generally subject to tax under section 1105(c)(5) of the Tax Law. Petitioner
should maintain records adequate to distinguish receipts from the rendition of such taxable services
from the non-taxable receipts discussed above.

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TSB-A-83(30)S
Sales Tax
July 7, 1983

The terms of section 1105(c)(5) itself exclude from tax receipts from the provision of
"interior cleaning and maintenance services performed on a regular contractual basis for a term of
not less than thirty days, other than window cleaning, rodent and pest control and trash removal from
buildings." Consequently, where Petitioner provides to a customer interior cleaning and maintenance
services under a contract of at least 30 days duration, and under which such services are provided
on a regular basis (but not necessarily on a daily basis), receipts derived from the fulfillment of such
contract will not be subject to tax. If, in addition to such exempt services, Petitioner provides
services subject to tax under section 1105(c)(5) of the Tax Law, tax is due on receipts from the latter
only. However, the Sales and Use Tax Regulations provide, in this regard, that "if the contract or
billing does not separately state the charges applicable to taxable services and nontaxable services,
the entire charge is subject to tax." 20 NYCRR 527.7(c)(3)(ii).
It is further to be noted that the phrase "interior cleaning and maintenance services," as used
in section 1105(c)(5) of the Tax Law, has been construed as follows: "Interior cleaning and
maintenance services include ordinary janitorial services such as dusting, cleaning and waxing of
the walls and floors of a building, oiling of door hinges, replacing light bulbs, and simple repairs
such as replacement of washers." 20 NYCRR 527.7(c)(3)(iv). See in this regard Direen Operating
Corp. v. State Tax Commission, 46 AD 2d 191, in which it was held that under a contract of the type
contemplated by the statutory provision under discussion the exemption would not be lost by reason
of the performance of minor repairs such as releasing a stuck window, replacing a washer in a leaky
faucet and other tasks of a similar nature. National Elevator Industry, Inc. v. New York State Tax
Commission, 49 NY 2d 538; State Tax Commission Declaratory Ruling 77-01.

DATED: June 10, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau