Texas Letter Ruling 9211563L: Does a company owe sales tax on temporary security guards hired to supplement its existing security force?

Plain-English summary

A company (COMPANY) hires temporary security guards during peak seasons to supplement its existing, in-house security force. COMPANY's own security staff directs the work and placement of these temporary guards. COMPANY asked the Comptroller whether it owes sales tax to the staffing company providing the guards, particularly since COMPANY does not supply uniforms or radios to the temporary workers, and also asked how to get a refund if tax was overpaid.

The Comptroller's answer turns on who is actually being purchased: a licensed security service, or ordinary temporary labor.

• If the guards must be licensed by the Board of Private Investigators and Private Security Agencies, then COMPANY is buying a taxable security service, regardless of staffing arrangements.
• If instead COMPANY hires people "off the street" or from a non-licensed temporary help service (in Standard Industrial Code Industry Group 7363), the charge is presumed to be non-taxable temporary help -- but only if COMPANY meets all the requirements of Section 151.057 of the Texas Tax Code.

Critically, one of those statutory requirements is that the company using the temporary workers must provide all equipment and supplies to them. Because COMPANY does not provide uniforms and radios, that requirement is not met -- so COMPANY does not qualify for the temporary-help presumption and would owe tax to the security-personnel provider. The Comptroller pointed COMPANY to Section (d) of Rule 3.333 (Security Services) for the taxable-security-service rules, and to Rule 3.325 (Refunds, Interest, and Payment Under Protest) for how to pursue a refund if tax was overpaid.

What this means for you

Businesses that supplement in-house security with temporary staff

Whether you owe sales tax on temporary security personnel depends on the legal character of what you're buying, not on what you call it internally. If the workers must be licensed security guards, the charge is a taxable security service no matter how you structure staffing or equipment. If you're instead getting genuinely unlicensed temporary labor, you must satisfy every requirement of Section 151.057 of the Texas Tax Code -- including furnishing all equipment and supplies (uniforms, radios, etc.) to the temporary workers yourself -- to get the non-taxable "temporary help" presumption. Skipping even one requirement, such as providing equipment, can turn the arrangement back into a taxable purchase of security services.

Accountants and tax professionals

This ruling illustrates the Comptroller's approach to distinguishing taxable "security services" from exempt "temporary help" arrangements under Rule 3.333(d) and Section 151.057. The equipment-and-supplies requirement is treated as a bright-line statutory element: failing to provide equipment to temporary workers defeats the temporary-help presumption even if the workers themselves are unlicensed. For refund questions, the Comptroller directed the taxpayer to Rule 3.325 governing refunds, interest, and payment under protest.

Staffing and security companies

If you provide security personnel to clients, whether your charges are taxable depends on licensing status of the guards and on whether your client-companies meet the Section 151.057 temporary-help requirements. This affects how you should structure invoices and advise clients on tax collection.

Common questions

Q: Does COMPANY owe sales tax on the temporary security guards?
A: Based on the facts given -- that COMPANY does not provide uniforms and radios to the temporary employees -- COMPANY has not met all the statutory requirements of Section 151.057 of the Texas Tax Code for the temporary-help presumption, so it would owe tax to the provider of the security personnel.

Q: What's the difference between a taxable "security service" and non-taxable "temporary help"?
A: If the guards must be licensed by the Board of Private Investigators and Private Security Agencies, the purchase is a taxable security service under Rule 3.333. If the guards are unlicensed and hired "off the street" or from a non-licensed temporary help service (SIC Industry Group 7363), and all Section 151.057 requirements are met, the presumption is that it's non-taxable temporary help instead.

Q: What does providing equipment and supplies have to do with taxability?
A: It's one of the statutory requirements under Section 151.057 for the temporary-help presumption to apply. If the company using the workers doesn't provide all equipment and supplies (such as uniforms and radios), that requirement is not satisfied, and the arrangement is treated as a taxable purchase of security personnel rather than exempt temporary help.

Q: How can COMPANY get a refund if tax was overpaid?
A: The Comptroller referred COMPANY to Rule 3.325, Refunds, Interest, and Payment Under Protest, which provides the guidelines to follow when a refund of tax paid is due.

Q: Does this letter apply to other taxpayers?
A: This opinion is based on the specific facts COMPANY presented; the Comptroller noted the opinion may change if there are any additional or different facts. Under STAR's reliance rules, it can only be relied on by the taxpayer to whom it was issued.

Citations and references

Statutes and rules:

• Section 151.057 of the Texas Tax Code (temporary employment services)
• Rule 3.333, Security Services, Section (d)
• Rule 3.325, Refunds, Interest, and Payment Under Protest

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211563L

Original ruling text

November 3, 1992

Dear **:

Thank you for your letter of October 7, 1992, concerning temporary employees
hired by ** (COMPANY).

As I understand it, COMPANY hires temporary security guards during the peak
seasons to supplement the existing security force that it has on staff. The
work and placement of the temporary employees is directed by COMPANY security
staff. You question whether COMPANY owes tax to the security company providing
the temporary employees if COMPANY does not provide uniforms and radios to the
temporary employees. Also, you question how a refund may be obtained if one is
due to COMPANY.

To determine the taxability of this service, we would look to the provider of
the temporary help. For example, if you require security guards that are
licensed by the Board of Private Investigators and Private Security Agencies,
then you are purchasing a taxable security service rather than employing
temporary help. However, if you hire people "off the street" or from a non
licensed temporary help service (from the Standard Industrial Code Industry
Group 7363) and you meet all the provisions of Section 151.057 of the Texas Tax
Code, then the presumption is that you are acquiring temporary help and not a
taxable security service. If you do not provide all equipment and supplies to
the temporary help staff, then one of the statutory requirements of a temporary
employee has not been met. You would owe tax to the provider of the security
personnel. Please refer to Section (d) of Rule 3.333, Security Services.

I have enclosed Rule 3.325, Refunds, Interest, and Payment Under Protest, for
your review. This rule provides the guidelines you should follow if you are due
a refund of tax paid.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

If you have any questions or need additional information, you may call toll
free 1-800-252-5555, ext. 50037 or the regular Austin number is 512-475-0037.
You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division