Taxation of Services by Employment Agencies and Agencies Providing Personnel Services
BACKGROUND: The Department issued PS 93(3) on November 3, 1993 to provide information regarding the taxation of services rendered by employment agencies and personnel agencies. This Policy Statement expands the examples illustrating the taxability of personnel services.
PURPOSE: This Policy Statement sets forth the Department's guidelines for the imposition of sales and use taxes on services by employment agencies and agencies providing personnel services under Conn. Gen. Stat. Section 12-407(2)(i)(C).
EFFECTIVE DATE: Effective upon issuance and applicable to all open tax periods as of the date of issuance.
STATUTORY AUTHORITY: Conn. Gen. Stat. Section 12-407(2)(i)(C) and Conn. Gen. Stat. Sections 12-407(8) and (9), as amended by 1993 Conn. Pub. Acts 332, Section 28; Conn. Agencies Regs. Section 12-426-27(b)(3)(b) and (c); and Conn. Agencies Regs. Section 12-426-27(g) and (h).
"AGENCIES" DEFINED: The term "agencies," as used in Conn. Gen. Stat. Section 12-407(2)(i)(C), includes, but is not limited to, service providers generally recognized as temporary help agencies and employment agencies. The Supreme Court of Connecticut has recognized that an "agency" is "'any organization, company or bureau that provides some service to another.'" American Totalisator Systems, Inc. v. Dubno, 210 Conn. 413, 419 (1989). Therefore, any organization, company or bureau that provides services which fit the descriptions of taxable services set forth in this Policy Statement is an "agency" for purposes of Conn. Gen. Stat. Section 12-407(2)(i)(C).
SERVICES BY EMPLOYMENT AGENCIES: Taxable services by employment agencies are described in Conn. Agencies Regs. Section 12-426-27(b)(3)(b) as follows:
"Employment services" mean and include the procurement or offer to procure for a consideration: Jobs or positions for those seeking employment; or employees for employers seeking the services of employees.
The regulation describes the two most typical types of services of employment agencies, namely, when an agency attempts to obtain a job for a job-seeker, and when an agency attempts to find an employee for an employer.
Employer-employee relationship: The precise language of the last portion of this regulation --"employees for employers seeking the services of employees"-- indicates that, to provide taxable services, employment agencies must procure or offer to procure an actual employee, with the intention of creating a permanent employer-employee relationship between the service recipient (the employer) and the employee seeking the job. By the same token, when an employment agency procures or offers to procure "jobs or positions for those seeking employment," to be taxable such services must result or be intended to result in a permanent employer-employee relationship between the service recipient (the job-seeker) and an employer.
Agents for independent contractors: Agencies that assist in any way (as agents, brokers or otherwise) in the procurement of jobs for musicians, entertainers or others, typically on a short-term or one-time basis, when the job-seekers are and will remain independent contractors, are not performing taxable employment agency services, because these services are not intended to result in the creation of a permanent employer-employee relationship.
Taxable gross receipts for services by employment agencies: The gross receipts subject to sales tax and the sales price subject to use tax for services by employment agencies is the total fee charged by the service provider for procuring or offering to procure a job or position for a service recipient (either a job-seeker or an employer), whether the fee is ultimately paid by the service recipient or by a third party.
AGENCIES PROVIDING PERSONNEL SERVICES: Taxable personnel services are described in Conn. Agencies Regs. Section 12-426-27(b)(3)(c) as follows:
"Personnel services" mean and include furnishing temporary or part-time help to others by means of employing such temporary and part-time help directly.
As differentiated from employment agency services, personnel services involve the placing, for a consideration, of an agency's own employee with a service recipient for the purpose of having that employee act as the employee of the service recipient during the time he or she is so placed. Typically, such temporary employees are provided in order to support or supplement the workforce of a service recipient; however, even if a service recipient has no "workforce" per se, it may purchase taxable personnel services.
Necessary elements of a personnel service: Two elements are necessary for a personnel service to be taxable: (1) an employer must directly employ employees who will furnish temporary or part-time help to a service recipient, and (2) while the employee is with the service recipient, the service recipient must have control over the work which the employee is to do as well as how the work is to be done within the general parameters of the type of personnel service contracted for (e.g., clerical, accounting, etc.).
To determine whether an employee is functioning as the employee of a service recipient, it is necessary to examine who controls the means and method of the employment during the time the employee is with the service recipient. The element of control over what is to be done and how it is to be done is the standard which is used to differentiate between a service recipient who wishes to receive the services of a temporary or part-time employee (such as to support or supplement the service recipient's workforce), as opposed to a service recipient who wishes to receive a specific service which may be performed by an employee of the service provider.
EXAMPLE 1 : An individual hires an agency to provide a driver to drive the individual in his own vehicle to the airport, drop him off, drive the vehicle back to a specified location, then drive the vehicle back to the airport a week later at a specified time, to pick him up. The driver is an employee of the agency. The route, the drop off and pick up times and the storage location of the vehicle are prearranged between the agency and the individual. Although the individual may request minor deviations in the route along the way, in general, the driver's responsibilities and conduct are prearranged, and are prescribed and controlled by the agency, not by the individual. In this case, the individual is purchasing driving services, not personnel services.
EXAMPLE 2 : A medically incapacitated individual hires a nursing agency to provide a nurse to care for, and assist in the medical recovery of, the individual. The nurse is an employee of the agency. The duties, of which "light housekeeping" may be an inconsequential element, are prearranged between the agency and the individual. The nurse's responsibilities and conduct are prearranged, and are prescribed and controlled by the agency, and not by the individual. In this case, the individual is purchasing nursing services, not personnel services.
EXAMPLE 3 : A nursing agency is hired by a convalescent home to provide nurses who will work on a part-time basis in supplementing the workforce of the home. The nurses are employees of the agency. While the nurses are placed with the convalescent home, the home will have control over the work which the employees are to do as well as how the work is to be done within the general parameters of the type of personnel services contracted for (namely, nursing services). In this case, the convalescent home is purchasing personnel services, and, if the home is not, as described in Conn. Gen. Stat. §12- 412(5), a nonprofit home for the aged, nursing home or rest home that has been issued a license by the Connecticut Department of Public Health and Addictive Services pursuant to chapter 368v of the general statutes, those purchases will be subject to sales and use taxes.
Employee Leasing: Employee leasing means providing leased employees for a consideration. A "leased employee" is defined generally in section 414(n) of the Internal Revenue Code as an employee of a service provider who provides services to a service recipient, if (a) such services are performed pursuant to an agreement between the service provider and the service recipient, (b) the employee has performed such services for the service recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one year, and (c) such services are of a type historically performed, in the business field of the service recipient, by employees. Employee leasing is a taxable personnel service, and providers of leased employees are agencies providing personnel services under Conn. Gen. Stat. Section 12-407 (2) (i) (C). See below for the special rule regarding the measure of sales and use taxes on employee leasing.
Taxable gross receipts of agencies providing personnel services: In general, the gross receipts subject to sales tax and the sales price subject to use tax for services of agencies providing personnel services is the entire amount charged by the service provider to the service recipient, including amounts for compensation of the employee and all expenses related thereto, whether or not separately stated by the service provider.
However, with respect to leased employees only, for sales occurring on or after July 1, 1993, 1993 Conn. Pub. Acts 332, Section 28 has amended Conn. Gen. Stat. Section 12-407(8) and (9) to exclude from the measure of tax
the amount charged for separately stated compensation, fringe benefits, workers' compensation and payroll taxes or assessments paid to or on behalf of an employee, as defined as a leased employee pursuant to section 414(n) of the Internal Revenue Code of 1986, or any subsequent corresponding Internal Revenue Code of the United States, provided a leased employee shall not include an employee who is hired by a temporary help service and assigned to support or supplement the workforce of a temporary help service's client.
The effect of this statutory amendment is to exclude from the measure of sales and use taxes for employee leasing all separately stated employee-related expenses of the service provider for all employees who qualify as "leased employees" under the definition in section 414(n) of the Internal Revenue Code. That definition is outlined, above, in this Policy Statement. The amendment carefully differentiates between the employee leasing type of personnel services and the temporary help type of personnel services discussed herein. The exclusion from gross receipts and sales price applies only to qualified leased employees.
SOURCING OF SERVICES: The rules regarding the sourcing of employment agency and personnel services are set forth in Conn. Agencies Regs. Section 12-426-27. Subsection (g) provides that:
employment services are taxable if the agency rendering such services procures a job or position in a Connecticut business for a person seeking employment. If a job or position is procured without the state, such services are not taxable.
For employment agency services it is the location of the job which is procured that determines whether the service is taxable in Connecticut.
EXAMPLE: A company with an office within and an office without Connecticut seeks a full-time employee for each of those offices, and pays fees to an employment agency for the procurement of the employees. The fees in connection with the procurement of the employee who will work in the Connecticut office are taxable, and the fees in connection with the employee who will work outside Connecticut are not taxable, regardless of the location of the agency providing the services.
Similarly, subsection (h) provides that:
personnel services are taxable if the agency rendering such services furnishes temporary or part-time help to a Connecticut business seeking such help. If temporary or part-time help is furnished to a business without the state, such services are not taxable.
For personnel agency services, it is the location of facility of the service recipient where the temporary or part-time help is furnished that determines whether the service is taxable in Connecticut.
EXAMPLE: A company with an office within and an office without Connecticut seeks temporary clerical personnel for each of those offices, and pays fees to a personnel service agency for the provision of the temporary personnel. The fees in connection with the temporary personnel who will work in the Connecticut office are taxable, and the fees in connection with the temporary personnel who will work outside Connecticut are not taxable, regardless of the location of the agency providing the services.
EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current department policy or practice affecting the liability of taxpayers. Unlike a Letter Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions.
EFFECT ON OTHER DOCUMENTS: PS 93(3) and Bulletin 16 are superseded and may no longer be relied upon as of the date of issuance of this Policy Statement.
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Sales and use taxes
PS 93(3.1) supersedes PS 93(3) Issued: 11/3/93