Is an independent contractor who fills in as a temporary secretary/word processor for law firms exempt from sales tax as a 'temporary help service'?

Subject

Independent Contractor Temp Secretary For Law Firms — Temporary Help Service Exemption Test

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1262D11

Plain-English Summary

The taxpayer runs a sole proprietorship and is hired by law firms as an independent contractor to fill in temporarily as a secretary or word processor — covering for regular employees who are on vacation, out due to illness or injury, on maternity leave, or filling a gap until a replacement is hired after an employee quit or was fired. The taxpayer asked the Comptroller for a written clarification of how sales tax applies to this work.

The Comptroller's response explains that, absent a written contract spelling out the parties' relationship, the agency has historically applied common-law tests for an employer/employee relationship to decide whether a "temporary" employee's services are exempt from sales tax. These common-law tests were codified in Tax Code Section 151.057, effective October 1, 1989. As quoted in the letter, that statute exempts "a service performed by a temporary help service for an employer to supplement the employer's existing work force on a temporary basis, when the service is normally performed by the employer's own employees, the employer provides all supplies and equipment necessary, and the help is under the direct or general supervision of the employer to whom the help is furnished."

The letter breaks that statutory language into three concrete requirements for the exemption to apply: (1) the agreement must be for furnishing temporary employees, not for identifiable services — the help must supplement an existing work force on a temporary basis, performing functions the work force normally handles day-to-day; if the customer lacks a regular staff for that work, or is understaffed, the arrangement is presumed to be for taxable services rather than temporary employees; (2) the help must be under the customer's direct or general supervision, including the customer's right to ask that an unsatisfactory temporary helper be replaced; and (3) the customer must provide all supplies and equipment necessary to perform the services.

The Comptroller does not apply these three requirements to a specific yes/no conclusion about the taxpayer's law-firm work — the letter states it is meant to "assist" the taxpayer in determining whether their work qualifies. The letter also notes the standard caveat that this opinion is based on the facts presented and that different facts, though similar, may produce a different answer.

What This Means For You

If you're an independent contractor providing temporary staffing (e.g., filling in as a secretary, word processor, or similar role): Whether your services are exempt from sales tax as a "temporary help service" turns on the customer's control and supply arrangements, not on how you or the customer label the arrangement. Check all three factors from this letter: is your work supplementing an existing staff doing its normal day-to-day work; are you supervised (directly or generally) by the client, with the client able to demand a replacement; and does the client supply the equipment and supplies you use.

If the client has no regular staff for the function, or is understaffed: This letter states that in that situation, the arrangement is presumed to be for taxable services rather than an exempt temporary-employee placement — so a business that permanently outsources a function it doesn't otherwise staff should not assume the exemption applies.

Written contracts matter: The letter notes the Comptroller looks to a written contract defining the parties' relationship first; absent one, it falls back on the common-law/statutory factors described here. Clear documentation of supervision and equipment-supply arrangements can help support the exemption analysis.

Q&A

Q: Does working as an independent contractor automatically make services taxable?
A: The letter doesn't say that directly — it explains that the label doesn't control. Whether the service is exempt depends on whether it meets the Tax Code Section 151.057 temporary-help-service test, regardless of how the parties describe the arrangement, especially absent a written contract defining the relationship.

Q: What are the three requirements for the temporary-help-service exemption described in this letter?
A: (1) The agreement must be for furnishing temporary employees supplementing an existing work force doing its normal day-to-day functions, not for identifiable services; (2) the help must be under the customer's direct or general supervision, including the right to have an unsatisfactory helper replaced; and (3) the customer must provide all supplies and equipment necessary to perform the services.

Q: What happens if the client doesn't have its own regular staff performing the function, or is understaffed?
A: Per the letter, "if the customer does not have a staff to regularly provide these services or is understaffed, then the contract will be presumed to be for services and not for temporary employees" — meaning the exemption would not apply.

Q: What statute did the Comptroller cite for this exemption?
A: Tax Code Section 151.057, effective October 1, 1989, which the letter quotes as exempting services performed by a temporary help service for an employer under the conditions described above.

Q: Did the Comptroller tell the taxpayer definitively whether their law-firm staffing work qualifies for the exemption?
A: No. The letter lays out the applicable test and states it is meant to help the taxpayer "determine if the work you perform for your attorney clients comes under the exempt temporary employee category," but does not issue a specific determination, and notes the opinion is based on the facts presented — different facts may lead to a different answer.

Original ruling text

October 8, 1993

Dear **:

This is in response to your letter dated October 6, 1993, regarding sales tax
as it applies to the situation(s) described below.

FACTS: On occasion, I am hired by law firms as an independent contractor to
work in their offices temporarily, filling in as a secretary and/or word
processor when their regular employees are on vacation, out due to
illness/injury, maternity leave, and I also fill in until a replacement can be
found for an employee who has quit or been fired.

QUESTION: I would like a clarification in writing regarding sales tax as it
applies to the above services. I am trying to run my sole proprietorship
business as a temporary service when I perform services to law firms in their
offices.

RESPONSE: Absent a written contract that defines the parties' relationships, we
have historically operated under variations of common law tests for an
employer/employee relationship to determine whether a "temporary" employee's
services were exempt.

These tests were codified in Tax Code 151.057, effective October 1, 1989, as
follows, to exempt:

. . . a service performed by a temporary help service for an employer to
supplement the employer's existing work force on a temporary basis, when the
service is normally performed by the employer's own employees, the employer
provides all supplies and equipment necessary, and the help is under the direct
or general supervision of the employer to whom the help is furnished . . . .

In other words, in order to qualify for the exemption for temporary help
services the following requirements must be met:

The agreement must be for furnishing temporary employees, and not for
identifiable services. That is, the help must supplement an existing work force
on a temporary basis, and the functions must be a type that are done by that
work force on a day-to-day basis. If the customer does not have a staff to
regularly provide these services or is understaffed, then the contract will be
presumed to be for services and not for temporary employees.

The help is under the direct or general supervision of the customer. This
includes the customer having the right to ask that a temporary helper be
replaced if his/her performance is not satisfactory.

The customer must provide all supplies and equipment necessary to perform the
services.

I hope this will assist you in your efforts to determine if the work you
perform for your attorney clients comes under the exempt temporary employee
category.

This opinion is based on the facts presented. Different facts, though similar,
may result in different answers. If you have any questions or need more
information, please write or call me at 1-800-531-5441, extension 50330, or
512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division