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

Description

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.