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Ruling 97-5, Sales and Use Taxes / Computer and Data Processing Services / Personnel Services


A company (the "Company") employs personnel who are skilled in the computer and data processing field. The Company contracts with customers in Connecticut to assist them with projects related to computer systems planning and implementation. The Company reviews a customer's computer service needs, determines what projects are necessary, then contracts with the customers for the Company's personnel to be on site at the customer's premises for a period of time based on the estimated time required to complete the project. The customer may designate the length of time the Company's personnel are needed and their work schedules for the duration of the project for which it requires the personnel.


Whether the Company is providing personnel services enumerated as taxable in Conn. Gen. Stat. 12-407(2)(i)(C) or computer and data processing services enumerated as taxable in 12-407(2)(i)(A).


For purposes of sales and use taxes, Conn. Gen. Stat. 12-407(2) defines "sale" and "selling" to include "(i) the rendering of certain services for a consideration . . . as follows: (A) Computer and data processing services, including, but not limited to, time . . . [and] (C) services by employment agencies and agencies providing personnel services. . . ." Tax is imposed under 12-408(1) at the rate of six percent on most enumerated services, including personnel services; however, under 12-408(1)(E) the tax rate on computer and data processing services is being reduced by one percent per year, commencing July 1, 1997, until the tax is eliminated on July 1, 2002.

The Department's interpretation of the scope of taxable personnel services is set forth and discussed in detail in Policy Statement 93(3.2). With respect to what types of service providers are "agencies" providing personnel services, the Policy Statement notes that "any organization, company or bureau that provides services that 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)." Policy Statement 93(3.2), page 1 of 4. The necessary elements of a personnel service are also set forth in the Policy Statement, as follows:

(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.). . . . 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.

Id., page 2 of 4. The examples following this explanation illustrate that when the duties to be performed by the service provider's employee are prearranged, as when the service provider and the service recipient have contracted for the performance of a specific project or specific type of specialized service, the service is not a personnel service. Only in instances where it is understood between the parties that the service provider's employee will function as the service recipient's employee, and that the service recipient will have discretion to treat the employee essentially as its own, will the service be a personnel service.

According to the facts of this ruling, the Company and its customers decide beforehand that specific computer-related projects are to be performed or overseen by the Company's personnel. The Company's personnel are placed at the customers' premises to complete the projects. Although the customers may designate the length of time the Company's personnel are needed, their work schedules, and the projects for which they require the personnel, these elements of "control" over the personnel by the customers are negotiated and prearranged by the customers and the Company before the projects begin. Once the personnel begin to perform the Company's obligations under the contracts, their duties have been arranged. The Company's customers do not have unilateral discretion to alter both the work the personnel are to do and how the work is to be done. Therefore, the Company is not providing personnel services as the Department has defined such services in Policy Statement 93(3.2). See also Ruling No. 93-21. Even if the customers dictate to the Company's personnel where they are to work, what hours they are to work, how they are to dress while on the job, and so on, these superficial elements of control will not make the Company a provider of personnel services, so long as the personnel are engaged in performing a predetermined project.

The Company's provision of personnel to lead and support projects related to computer systems planning and implementation falls within the scope of taxable computer and data processing services, as defined in Conn. Agencies Regs. 12-426-27(b)(1), specifically "designing, implementing or converting systems" and "providing consulting services. . . ."


The Company is providing computer and data processing services enumerated as taxable in 12-407(2)(i)(A), and not personnel services enumerated as taxable in Conn. Gen. Stat. 12-407(2)(i)(C).


November 25, 1997