Are a temporary help service's charges for supplying skilled workers (e.g., plumbers) to help a construction business complete jobs taxable as sales tax, or exempt as 'services by employees' under Sec. 151.057?

Plain-English summary

A temporary help service asked the Comptroller whether its charges for supplying skilled workers — like plumbers — to a construction business are subject to Texas sales tax. The Comptroller answered with the "services by employees" exemption in Tax Code Sec. 151.057, using the letter-writer's own plumber example: a plumber has five jobs to finish in a week but only enough of his own crew for three, so he calls the temporary help service to send five more skilled plumbers.

The Comptroller restated the statute as a four-part test. The temporary help service's charge to the plumber is not taxable only if all four of these are true:

1. The temporary workers supplement the plumber's existing workforce on a temporary basis.
2. The work the temporary workers do is normally performed by the plumber's own employees.
3. The plumber (the client), not the temporary help service, provides all necessary supplies and equipment.
4. The temporary workers are under the plumber's direct or general supervision.

If even one of these four conditions isn't met, the charge for the temporary help becomes taxable — but only "when the labor or service performed is taxed under the sales tax statute" in the first place. In other words, failing the four-part test doesn't automatically make the charge taxable; it just means the exemption doesn't apply, so the ordinary taxability of the underlying labor governs.

What this means for you

Temporary staffing / temporary help services

If you supply workers to another business to supplement that business's own workforce, your charges can be exempt from Texas sales tax — but only if you can show all four Sec. 151.057 conditions are satisfied for that placement. Keep records showing the client supervised the workers directly and supplied the tools/equipment, since those are the elements most likely to be challenged.

Construction businesses and other clients hiring temporary help

If you bring in temporary skilled workers (electricians, plumbers, etc.) to help finish jobs, make sure you are the one supplying equipment and directly/generally supervising them, and that the work is the kind your own crew normally does. That's what keeps the staffing company's charge to you exempt.

Anyone unsure whether one of the four tests is met

If any one of the four conditions fails, the exemption doesn't apply, and the charge is taxable to the extent the underlying labor/service is itself taxable under the sales tax statute — so the analysis still depends on whether that specific type of labor is taxable in Texas.

Common questions

Q: Is a temporary help service's charge for supplying workers to a construction company automatically exempt from sales tax?
A: No. It's exempt only if all four conditions in Sec. 151.057 are met: the workers supplement the client's existing workforce temporarily, the client's own employees normally do that work, the client supplies the equipment, and the client supervises the workers.

Q: Who has to supply the tools and equipment for the exemption to apply?
A: The client (the business receiving the temporary help), not the temporary help service.

Q: What happens if only some of the four conditions are met?
A: The exemption doesn't apply, and the charge for the temporary help becomes taxable, to the extent the underlying labor or service is itself taxed under the sales tax statute.

Q: Can other temporary-help businesses rely on this letter?
A: No. The Comptroller states the opinion is based on the facts presented, and different or additional facts may change the result; it applies to the taxpayer who requested it.

Citations and references

Statutes and rules:

• Tex. Tax Code Sec. 151.057 (Services by Employees — exempts a service performed by an employee for an employer, and services by a temporary help service supplementing an employer's own workforce, from sales tax when specified conditions are met)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9603L1405A14

Original ruling text

March 1, 1996

VIA FAX

Dear **:

This is the excerpt from the statute:

Sec. 151.057. Services by Employees
A service performed by an employee for his employer in the regular course of
business, within the scope of the employee's duties, and for which the
employee is paid his regular wages or salary, or 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, is not taxable under this chapter.

This is the example I gave you over the phone:

Pretend a plumber calls and says I have five jobs to do by next week. I only
have enough of my own employees to handle three of the jobs. Please send
five skilled plumbers to me to help with these jobs.

I've used this scenario to restate the statute below:

Your company's charge(s) to the plumber for the services performed by the
employees of your temporary help service are not taxable when all of the
following conditions are met. (1) Your employees supplement the plumber's
existing work force on a temporary basis, (2) the service performed by your
employees for the plumber is normally performed by the plumber's own
employees, (3) the plumber provides all supplies and equipment necessary,
and (4) your employees are under the direct or general supervision of the
plumber to whom your employees are furnished.

As I stated during our telephone conversation, if all four tests are not
met, your charges for temporary help services are taxable when the labor or
service performed is taxed under the sales tax statute.

This opinion is based upon the facts presented. If your operations have
additional or different facts, this opinion may change. You may also write
to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division

NOTE: Previous Accession Number 9603126L