Are the weekly per-employee fees a company charges to train, supervise, and run payroll for a hotel's own housekeeping staff subject to New York sales tax?

Plain-English summary

Cleaning a building is normally a taxable service in New York. But this company did not actually clean anything — it managed the hotel customer's own housekeeping employees. Under the management agreement, the company was the hotel's "sole and exclusive agent": the workers stayed under the hotel's ultimate direction and control, the hotel paid their wages and benefits, and the company trained them, supervised them, ran the daily briefings, kept the payroll records, and paid the wages out of the hotel's funds, charging $110 per week per scheduled employee.

The Office of Counsel held that none of this is a taxable service to real property. The taxable activity — the cleaning — is performed by the hotel's own employees, not by the company. Supervising those employees and handling payroll as the hotel's agent is not one of the services taxed under Tax Law § 1105(c). So the weekly per-employee management fees are not taxable, and the wages the company passes through to the hotel's employees are not taxable receipts either.

What this means for you

Staffing and management companies

The key is who performs the work and who controls the workers. If your client's own employees do the cleaning and you merely supervise, train, and manage payroll as the client's agent, your fee is generally not a taxable cleaning or maintenance service. If instead you supply the labor and perform the cleaning yourself, the charge is taxable under § 1105(c)(5).

Hotels and other building owners

Outsourcing the management of in-house housekeeping staff is different, for sales-tax purposes, from buying a cleaning service. Keep the agreement clear that the workers remain your employees under your ultimate control if that is the actual arrangement.

Accountants and tax professionals

Wages paid to the customer's own employees are excluded from taxable receipts (20 NYCRR 527.7(c)(2); TSB-A-93(52)S). The decision turns on the agency structure and the locus of control, not on the label of the fee.

Common questions

Q: Isn't cleaning a hotel a taxable service?
A: Yes, when the provider performs the cleaning. Here the hotel's own employees clean; the company only supervises them and runs payroll as agent, which is not a taxable § 1105(c) service.

Q: Are the wages that flow through the management company taxable?
A: No. Wages paid to the customer's own employees are not receipts subject to sales tax.

Q: What if the management company actually supplied and directed the cleaners itself?
A: Then it would likely be performing a taxable maintenance/cleaning service to real property under § 1105(c)(5). The agency structure and control are what made this arrangement nontaxable.

Q: Can I rely on this opinion for my own staffing business?
A: Only the petitioner can. An Advisory Opinion binds the Department only as to the taxpayer it was issued to; use it as guidance and confirm your own facts.

Citations and references

Statutes and regulations:
- Tax Law § 1105(c), (c)(3), (c)(5) (enumerated taxable services; servicing TPP and real property)
- 20 NYCRR 527.5(a)(3) (maintaining/servicing tangible personal property)
- 20 NYCRR 527.7(a)(1) (maintaining/servicing/repairing real property)
- 20 NYCRR 527.7(c)(2) (wages of customer's own employees not taxable receipts)

Department guidance cited:
- TSB-M-91(4)(S) (cleaning as taxable maintenance)
- TSB-A-93(52)S (employees' wages not taxable receipts)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-49s.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-49s.pdf

Original ruling text

TSB-A-24(49)S
Sales Tax
October 16, 2024

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ REDACTED ] (“Petitioner”). Petitioner asks whether its receipts for hotel cleaning services are subject to New York State and local sales and use taxes.

We conclude that Petitioner’s services do not constitute the performance of services to real property and, thus, the weekly per-employee fees Petitioner receives from its customers are not receipts subject to tax.

Facts

Petitioner contracts with businesses in the hospitality industry to manage their housekeeping personnel. Petitioner provided a sample Management Agreement (“Agreement”) and a detailed schedule of job duties for the employees who perform cleaning services.

Under the Agreement, Petitioner and its customer agree that Petitioner is the customer’s sole and exclusive agent to manage the customer’s employees in the performance of cleaning services. The Agreement states that all persons providing services on behalf of the customer shall be under the customer’s ultimate direction and control, subject to the supervision of Petitioner as the customer’s agent. The customer is responsible for employee wages and other employment-related expenses, such as social security, unemployment insurance, worker’s compensation and health and retirement benefits. The customer remains liable for the negligence of its employees as to all third-parties except Petitioner, and customer agrees to indemnify Petitioner for any claims made by the customer’s employees. The customer also agrees to pay Petitioner a fee of $110.00 per week for each employee that is on the weekly schedule.

Petitioner’s services include training the customer’s employees on how to perform cleaning services and supervising housekeeping staff. Such supervision includes providing daily briefings related to guest information (VIP’s, special requests, etc.) and ensuring employees are provided with the necessary supplies. Petitioner also maintains complete payroll records for the customer and pays wages to the employees as agent of the customer from funds provided by the customer for this purpose.

Analysis

Generally, the receipts for sales of services to real property and tangible personal property, including maintenance, repair and cleaning services are subject to tax under Tax Law § 1105(c)(3) and (5). Maintaining, servicing and repairing are terms that are used to cover all activities that relate to keeping real property and tangible personal property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition. 20 NYCRR 527.5(a)(3) and 527.7(a)(1). Cleaning services, such as dusting furniture, and cleaning and waxing of the walls and floors of a building, are taxable maintenance services. See 20 NYCRR 527.7(c)(3)(iv); TSB-M-91(4)(S).

Here, it is the customer’s own employees who perform the cleaning services; Petitioner supervises those employees in performing those services and manages the customer’s payroll as agent of the customer. Petitioner’s services do not constitute the performance of services to real or tangible personal property for purposes of Tax Law § 1105(c) and, thus, the weekly per-employee fees Petitioner receives from its customer for such services are not subject to tax. Tax Law § 1105(c). In addition, the wages paid to the customer’s employees for the performance of their cleaning services are not receipts subject to sales tax. See, 20 NYCRR 527.7(c)(2); TSB-A-93(52)S.

DATED: October 16, 2024

MARY ELLEN LADOUCEUR
Principal Attorney

Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.