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RULE §3.364Services by Employees

  (5) When both nontaxable professional employer services and taxable services are being performed under the same agreement, the parties to the agreement should separately identify the taxable from nontaxable services in the agreement and the charges applicable to each. Failure to separate the charges will result in the entire agreement being presumed to be for taxable services. Documentation that clearly defines the work being performed should be retained by both parties to show that had the nontaxable professional employer services and taxable services been performed independently of each other, the cost of each would be reasonably near the allocation of charges. Examples of acceptable documentation include written agreements, which detail the scope of work, bid sheets, tally sheets, payroll records, and job descriptions. If there is not a written agreement signed by both parties clearly showing agreement as to the taxable and nontaxable work being performed, the customer and the service provider may prepare a written certification verifying the allocation of nontaxable professional employer services and taxable services. All services performed will be presumed to be taxable if the parties fail to provide the written certification. The comptroller may recalculate the charges if the allocation appears unreasonable and either party may be held responsible for the additional tax due.

(c) Independent contractor. Professional employer services do not include services performed by an independent contractor regardless of the status of the contractor as a licensed professional employer organization.

(d) Tax responsibilities of temporary employment services.

  (1) Taxable services performed for a host employer by temporary employees are exempt from sales tax when the following conditions are met:

    (A) the service is normally performed by the host employer's own employees;

    (B) the host employer is using the temporary employees to supplement its own work force;

    (C) the host employer provides the temporary employees all supplies and equipment necessary to perform the services, other than personal protective equipment provided by the temporary employment service pursuant to a federal law or regulation; and

    (D) the host employer does not rent, lease, purchase, or otherwise acquire for use any of the supplies and equipment described in paragraph (1)(C) of this subsection, other than the personal protective equipment described by that subsection, from the temporary employment service or an entity that is a member of an affiliated group of which the temporary employment service is also a member.

    (E) the host employer has the sole right to supervise, direct, and control the work performed by the temporary employee as necessary to conduct the host employer's business or to comply with any licensing, statutory, or regulatory requirement applicable to the host.

  (2) A temporary employment service may accept a properly completed blanket exemption certificate from the host employer. Refer to §3.287 of this title (relating to Exemption Certificates).

(e) Services provided for an employer by an employee. A service performed by an employee for the employee's employer in the regular course of business, within the scope of the employee's duties, and for which the employee is paid regular wages or salary, is exempt from sales and use tax. An employee is not required to provide an employer with an exemption certificate. The employment tax records that an employer maintains for the Internal Revenue Service are sufficient documentation of exemption.

Source Note: The provisions of this §3.364 adopted to be effective August 12, 1996, 21 TexReg 7266; amended to be effective May 10, 1998, 23 TexReg 4314; amended to be effective August 28, 2016, 41 TexReg 6213; amended to be effective July 3, 2018, 43 TexReg 4465

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