How were house-cleaning referral commissions and full-service cleaning receipts taxed under Connecticut Ruling 89-195?

Note -- revoked historical guidance. DRS marks this information "not current" and states that Policy Statement (PS) 93(3) revoked the ruling.

Plain-English summary

If Company X only referred self-employed contractors to clean homes, collected commissions from the contractors, and let the residents pay the contractors directly, the commissions were taxable employment-service fees. The contractors' direct compensation from residents was not taxable.

If Company X instead billed residents for house cleaning, paid the independent contractors, and retained a commission, its total gross receipts were taxable janitorial-service receipts. Its payments to the contractors were not taxable.

Based on Company X's advertising under "house cleaning," DRS said it appeared to operate a cleaning service.

What this means for you

The historical tax base depended on who sold and billed for the cleaning service. PS 93(3) later revoked the guidance.

Common questions

What was taxable under the referral model? The commissions charged to independent contractors.

Were residents' direct payments to contractors taxable? No under the ruling.

What was taxable under the cleaning-service model? Company X's total receipts from residents.

Were Company X's payments to contractors taxable? No.

Citations and references

• Conn. Gen. Stat. § 12-407(2)(i)(C) and (AA), as cited in the ruling.
• Public Act No. 89-251, as cited in the ruling.
• Policy Statement (PS) 93(3) -- identified by DRS as revoking this ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 89-195

Original ruling text

Ruling 89-195, Maintenance

This information is not current and is being provided for reference purposes only

Ruling 89-195

Maintenance

This Ruling has been revoked by   PS 93(3)

Employment and personnel services are subject to sales and use tax pursuant to section 12-407(2)(i)(C) of the Connecticut General Statutes.

If Company X operates a referral service to clean private homes whereby it directly receives commissions form the self-employed contractors for referrals and the independent contractors directly receive payment from the residents for cleaning their homes, then the referral service is taxable as an employment service. In this situation, the commissions that you charge the independent contractors for referrals to clean private homes are subject to the sales and use tax and the compensation received by the independent contractors from the residents is not taxable.

The total gross receipts for cleaning private homes are taxable janitorial services pursuant to section 12-407(2)(i)(AA) of the Connecticut General Statutes, as amended by Public Act No. 89-251.

If Company X operates a cleaning service whereby it charges the residents for cleaning their private homes and furnishes compensation to the self-employed independent contractors for performing the cleaning work, as well as retaining a commission for its services, then the total gross receipts are subject to the tax. The payments provided to the independent contractors are not taxable.

Company X advertises under "house cleaning" in the telephone book. Based on available information, you appear to be operating a cleaning service.

LEGAL DIVISION

November 8, 1989