Temporary employment agencies can no longer sell or rent supplies or equipment to clients and meet the exemption under the Texas Tax Code. [1] The Texas Tax Code exempts charges for temporary help services from the sales tax when certain requirements are met. One requirement is that the client of the agency provide the equipment and supplies of the assigned worker. In the past, agencies avoided this requirement by charging their clients for the supplies and equipment that the workers would bring with them to the client’s locations. The Comptroller perceived this tactic as abusive, so he sought and received a legislative fix. Now, agencies can no longer sell or rent supplies or equipment to clients and meet the exemption under the Texas Tax Code. This anti-abuse rule extends to affiliates of the temporary employment service.

Also, will employees have to provide exemption certificates to their employers? While this question sounds bizarre, the answer is far from clear. At the Comptroller’s suggestion, the 2017 legislature passed a law reclassifying employment labor from nontaxable to exempt.[2] Generally, to claim an exemption from sales tax, the person or business (the employee in this instance) must submit an exemption certificate. Moreover, the courts have held that the burden of proving an exemption rests with the purchaser of the taxable services (the employer in this instance) and doubts will be construed in favor of non-exemption or taxability.

The legislative changes to the rules for services by employees will become effective on September 1, 2017.

[1] Previously Tex. Tax Code § 151.057, renumbered to § 151.3503 by Acts 2017, 85th Leg. (S.B. 745), effective September 1, 2017.

[2] See id.