96-176
Response
December 30, 1996
Request
UT.
State Tax Commission
XXXXX,
S/U Tax Officer
210
N 1950 W
Salt
Lake City UT 84134
Dear
XXXXX:
To
ensure proper compliance with the laws of your state, a formal written letter of
determination is requested on whether there are sales and use tax implications
in the following transactions:
COMPANY
is a Professional Employer Organization formed to provide employment services
to affiliated businesses (hereinafter “clients” ) looking, for ways to reduce
labor costs, paperwork and other administrative burdens of having employees
COMPANYwill enter into long-term employee leasing agreements with its clients.
The client's employees will then become employees of COMPANYand will be on COMPANY's
payroll and participate in COMPANY's benefit programs COMPANYwill, in turn,
lease the employees back to the client COMPANYwill be responsible for payment
of payroll taxes, employer withholding taxes, workers' compensation premiums,
obtaining group health care insurance for its employees, and preparing and
filing necessary tax returns and other documents. In exchange for its services. COMPANY will be reimbursed for all
monies disbursed for payroll, employment and withholding taxes, workers'
compensation premiums, or other employee benefit payments relating to the
leased employees, plus an additional percentage as a service fee. COMPANY’s
invoices will separately itemize the service fee amount
Although
on COMPANY’s payroll, the clients will continue to supervise the leased
employees. Clients will retain total control over the hiring, firing, wage
rates and salary increases of employees.
Clients will also be responsible for training employees and directing
their day-to-day activities. If a
client terminates COMPANY’s services, the employees will continue to work for
the client, presumably on the client's payroll, and will terminate their
employment with COMPANY. If a client terminates an employee, the employee will
not continue to work for COMPANY. No COMPANY
leased employee will work for more than one client, and COMPANY will not
maintain an inventory of temporary employees to send out to its clients on an
as needed basis. COMPANY will not
operata a temporary service or labor broker type business. The employees
involved will be the regular, dedicated work forces of COMPANY’s clients. While
COMPANY will be the employer of record and will assume significant
employer/employee responsibilities, this arrangement will create a snared
employer or coemployer environment with its clients.
In
all of the above respects, COMPANY is very different from a temporary services
agency ("Temp Agency"). Temp Agencies typically hire employees who
are available to work for any client of the agency on a day-to-day basis. Temp Agencies control the hiring, firing,
wage rates and training of their employees.
Temp Agencies set the hourly rates at which employees with specific
skills are provided to their clients. The employees of a Temp Agency may work
for many different clients during a pay period. If a particular client terminates its relationship with the Temp
Agency, the agency's employees remain with the agency and work for its other
clients.
Based
on the facts stated above, I am requesting an opinion as to whether COMPANY be
required to collect the state's sales (or gross receipts) and use tax on:
1
) The reimbursement amount received from its clients for payroll, employment
and withholding taxes, and other employment benefit;
2)
The amount received from its clients for the service fee; or
3)
Both amounts, 1 & 2 above?
If
you need additional clarification of the facts or questions above, please feel
free to contact me at #####. Your response in this matter is greatly appreciated
and should be addressed to my attention at:
XXXXX
Sincerely
NAME
ADDRESS
CITY,
STATE, ZIP
Advisory
opinion - sales tax on employee leasing contracts
Dear
XXXXX,
We have received your request for an
advisory opinion pertaining to the application of sales tax to your company’s
employee leasing contracts. We find
that the charges to your clients for payroll reimbursements and service fees
are not subject to sales tax.
Although you mentioned that COMPANY
is responsible for payroll taxes and withholding taxes, please be aware that
COMPANY is also subject to Utah’s corporate income tax provisions. If you have
specific questions about filing your Utah return, please contact our Customer
Service Division at #####.
For
the Commission,
Joe
B. Pacheco,
Commissioner