Sales and Use Tax Challenges With Highly Skilled Temporary Workers: Varying States' Treatment of Professional Services

Many companies are utilizing temporary workers and employment services to fill needs for highly skilled technical and managerial personnel. This creates a significant challenge for state taxing authorities in determining whether the use of highly skilled temporary workers is subject to sales and/or use tax. Various states have different approaches on how to tax these employment arrangements, and the lack of uniformity creates a complex landscape for tax advisers to companies utilizing these workers.

Historically, states based their taxing approach to temporary workers on the assumption that most temporary employment involved lower skilled manufacturing personnel, whose work was closely supervised and controlled by the client company and whose wages were paid by the employment agency. However, as temporary arrangements increasingly involve highly skilled workers who perform tasks under less direct control and supervision, many states are adapting their taxing regimes to subject these temporary employment transactions to sales and use tax.

Other critical questions in determining whether and how temporary employment arrangements are taxed include individual states’ definitions of “professional services,” which states utilize a business classification test to tax underlying services, and how states include remotely provided services in their taxing equation. This dynamic area of sales and use tax is increasingly important due to states’ more aggressive approaches in examining tax returns of companies utilizing highly skilled temp workers.

Listen as our experienced panel provides a comprehensive and practical guide to the various states’ approaches to taxation of highly skilled temporary workers.

1. Evolution of temporary work
2. Overview of state transaction tax approaches to highly skilled/professional temporary workers’ services
3. Distinction between “temporary services” and “professional services”
4. Taxation of underlying services provided by temporary workers
5. Sourcing, tax base and resale of services
6. Audit defense challenges for the buyer and the seller

The panel will discuss these and other critical questions:

• What states apply an “underlying business character” test to determine whether temporary staffing, co-employment or employee placement services are subject to sales and use tax?
• How are states defining “control” for purposes of determining whether a temporary employment transaction is subject to tax?
• How are states looking at services provided remotely by temporary workers to determine sales and use taxability?
• What are the key issues to be considered in defending a state sales and use tax audit focusing on temporary employment services?

Learning Objectives

After completing this course, you will be able to:

• Distinguish varying state approaches to taxation of temporary employment services of highly skilled workers procured through third-party vendors
• Recognize whether the end-user company utilizing the highly skilled temporary workers has sufficient control over those workers to pass various states’ “control test”
• Identify taxable underlying services provided by temporary workers in states that do not subject temporary services to sales tax
• Identify audit risks for users of vendor management systems and managed service providers

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Basic knowledge of taxation.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.