| (a) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Affiliated group--Entities in which a controlling
interest is owned by a common owner or owners, either corporate or
noncorporate, or by one or more of the member entities.
(2) Client--Any person who enters into a professional
employer services agreement with a professional employer organization.
(3) Coemployer--A professional employer organization
or a client that is a party to a coemployment relationship.
(4) Coemployment relationship--A contractual relationship
between a client and a professional employer organization that involves
the sharing of employment responsibilities with or allocation of employment
responsibilities to covered employees in accordance with a professional
employer services agreement and the provisions of Labor Code, Chapter
91.
(5) Covered employee--An individual having a coemployment
relationship with a professional employer organization and a client.
The term does not include an independent contractor, a temporary common
worker as defined by Labor Code, Chapter 92, or an employee providing
temporary help.
(6) Controlling interest--
(A) for a corporation, either more than 50%, owned
directly or indirectly, of the total combined voting power of all
classes of stock of the corporation, or more than 50%, owned directly
or indirectly, of the beneficial ownership interest in the voting
stock of the corporation;
(B) for a partnership, association, trust, or other
entity other than a limited liability company, more than 50%, owned
directly or indirectly, of the capital, profits, or beneficial interest
in the partnership, association, trust, or other entity; and
(C) for a limited liability company, either more than
50%, owned directly or indirectly, of the total membership interest
of the limited liability company or more than 50%, owned directly
or indirectly, of the beneficial ownership interest in the membership
interest of the limited liability company.
(7) Host employer--The employer who owns, manages,
or controls the property or worksite where a temporary employee performs
a service.
(8) Independent contractor--A person who contracts
to perform work or provide a service for the benefit of another and
who:
(A) is paid by the job, not by the hour or some other
time measured basis;
(B) is free to hire as many helpers as the person desires
and to determine what each helper will be paid;
(C) is free to work for other customers, or to send
helpers to work for other customers, while under contract to the hiring
customer; and
(D) is in control of the details of the work and the
right to terminate the employment of its employees.
(9) Professional employer organization--A business
entity that offers professional employer services and is licensed
under Labor Code, Chapter 91.
(10) Professional employer services--Services provided
to a client by a professional employer organization through a coemployment
relationship when a majority of the employees providing services to
the client, or to a division or work unit of the client, are covered
employees. The term does not include:
(A) temporary employees;
(B) the provision of services by an independent contractor;
(C) the provision of services that otherwise meet the
definition of "professional employer services" by one person solely
to other persons who are related to the service provider by common
ownership; or
(D) services provided by a temporary common worker
employer as defined by Labor Code, Chapter 92.
(11) Temporary employee--An employee of a temporary
employment service.
(12) Temporary employment service--A person, corporation,
organization, or other legal entity that employs individuals for the
purpose of assigning those individuals to a host employer to support
or supplement the host employer's workforce in a special work situation,
including:
(A) an employee absence;
(B) a temporary skill shortage;
(C) a seasonal workload; or
(D) a special assignment or project.
(b) Tax responsibilities of professional employer organizations.
(1) Sales tax is not due on professional employer services
if all of the following conditions are met:
(A) at least 75% of the covered employees providing
services under the professional employer services agreement were previously
employees of the client for a period of at least three months immediately
prior to commencement of the professional employer services agreement;
(B) none of the covered employees were employed previously:
(i) by the company providing professional employer
services under the agreement unless the previous employment was through
a coemployment relationship; or
(ii) by a person that previously provided or currently
provides taxable services to the client; and
(C) a coemployment relationship exists between the
client and the professional employer organization as to the covered
employees.
(2) The following are exceptions to paragraph (1) of
this subsection.
(A) A professional employer services agreement must
comply only with paragraph (1)(B) and (C) of this subsection when
the client has been in operation for less than a year; provided that
a client that has been in existence less than a year solely due to
a change in legal entity, merger, or corporate reorganization must
meet all three conditions. In the latter situation, the combined experience
of all entities involved in such legal change, merger, or corporate
reorganization will be considered when applying the tests set forth
in paragraph (1) of this subsection.
(B) When a professional employer organization enters
into an agreement with a client that previously was in a coemployment
relationship with another professional employer organization immediately
prior to the effective date of such new agreement, the employees that
were subject to the coemployment relationship will be considered employees
of the client in meeting the requirement in paragraph (1)(A) of this
subsection.
(C) A professional employer services agreement that
has met the qualifications in paragraph (1) of this subsection will
not have to re-qualify if a covered employee is fired or resigns and
is replaced. However, an agreement must re-qualify under paragraph
(1) if, within six months after it is entered into, all of the covered
employees or an identifiable segment of the covered employees are
replaced by:
(i) employees previously employed by the professional
employer organization unless the previous employment was through a
coemployment relationship with another client; or
(ii) employees of an entity that previously provided
or currently provides taxable services to the client.
(D) If the scope of an existing professional employer
services agreement is expanded to increase the volume of services
of the type already provided by the professional employer organization
by adding employees to perform the same work functions of employees
already under the agreement (for example, another shift is added),
the amended agreement must meet the qualifications in paragraph (1)(B)(i)
and (C) of this subsection.
(E) If the scope of an existing professional employer
services agreement is expanded to include services not previously
provided by the professional employer organization by adding employees
to perform functions that are not currently performed by employees
under the agreement (for example, employees are added to perform debt
collection services for a client who previously had not performed
those services in house), the amended agreement must meet the qualifications
in paragraph (1)(B) and (C) of this subsection.
(3) The client and the professional employer organization
must sign a written certification that the professional employer services
agreement or amendments to the agreement meet the requirements and
conditions set out in this section, and both parties must retain a
copy of the certification in their files.
(4) If an agreement does not meet the conditions for
exemption set out in subsection (b) of this section, taxable services
as defined in Tax Code, §151.0101, performed under the agreement
are subject to sales tax, unless purchased for resale as provided
in §3.285 of this title (relating to Resale Certificates; Sales
for Resale).
Cont'd... |
