Is a temporary staffing agency's key-entry data-entry work, performed at a client's own facility using the client's own computer system, subject to New York sales tax?

Plain-English summary

United Parcel Service contracts with an outside temporary staffing agency for "temps" who key-enter three types of paper records into UPS's own computer systems: employee time cards (feeding UPS's payroll system, followed by additional steps a UPS payroll supervisor takes to actually generate paychecks), C.O.D. turn-in stubs (feeding a system a UPS C.O.D. supervisor then uses to generate remittance instructions for a centralized New Jersey facility), and package pick-up billing records (feeding a system a UPS billing supervisor uses to generate customer bills). All the temps' work happens at UPS's own locations, on UPS's own computers, and no tangible property is exchanged, created, or altered as a result -- getting the final output (paychecks, C.O.D. remittances, customer bills) always requires UPS's own personnel to take additional processing steps afterward. UPS asked whether the temp agency's charges for this key-entry work are taxable.

The Department's guidance on temporary service contractors (TSB-M-87(13)S) establishes that a temp agency's fees are taxable ONLY to the extent the underlying work the temps perform would itself fall within an enumerated taxable service category under § 1105(c) -- the tax follows the nature of the WORK, not the staffing arrangement. Here, the Department found the temps' key-entry work matches neither § 1105(c)(1)'s taxable "information services" (since the temps aren't furnishing NEW information to UPS -- they're just transcribing UPS's own existing paper records into UPS's own system) nor § 1105(c)(2)'s taxable processing/printing services (since no tangible personal property is created, altered, or exchanged in the process). With neither category satisfied, the temp agency's charges for this specific key-entry work fall entirely outside New York's enumerated taxable services and are untaxed.

What this means for you

Businesses using temp staffing for internal data-entry work

If your temps are simply transcribing your OWN existing records into your OWN computer systems -- not creating new information products, not processing or altering any tangible property, and not delivering an external report or deliverable -- the staffing agency's fee for that work is likely untaxed under this reasoning, following the established rule that a temp agency's tax liability tracks the taxability of the underlying work performed.

Temporary staffing agencies structuring client billing

Distinguish data-entry/transcription assignments (generally untaxed, per this opinion) from assignments where your temps ARE creating new information products for external distribution, or processing/altering tangible property -- those categories can trigger § 1105(c)(1) or (c)(2) liability, and you're responsible for collecting tax on assignments that do qualify.

Common questions

Q: Why doesn't key-entry work count as a taxable "information service"?
A: Because the temps aren't furnishing NEW information -- they're transcribing UPS's own existing paper records into UPS's own computer system, which the Department distinguished from compiling/analyzing information and furnishing reports to others.

Q: Does it matter that additional processing steps (by UPS's own staff) are still needed to produce the final paycheck, remittance, or bill?
A: The opinion notes this fact but the key point is that the temps themselves don't alter any tangible personal property or furnish new information -- the analysis doesn't turn on who does the LATER steps, just on what the temps' own work consists of.

Q: Would the answer change if the temps worked at the staffing agency's own location rather than the client's?
A: This opinion's facts specifically involve temps working at Petitioner's own location on Petitioner's own equipment; a different work arrangement isn't addressed here.

Q: Can another business rely on this exact result for its own temp staffing arrangement?
A: No. This advisory opinion binds the Department only as to United Parcel Service, Inc. and the specific facts described; a business whose temps perform different tasks (creating new information products, processing tangible property, etc.) should confirm its own facts.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) (tax on information services)
• Tax Law § 1105(c)(2) (tax on producing/fabricating/processing/printing tangible personal property)

Prior rulings and cases referenced:

• Taxability of Services Provided by Temporary Service Contractors, TSB-M-87(13)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_50s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (50)S
Sales Tax
August 19, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S950728A

On July 28,1995, a Petition for Advisory Opinion was received from United Parcel Service,
Inc., 55 Glenlake Parkway, N.E., Atlanta, GA 30328.
The issue raised by Petitioner, United Parcel Service, Inc. is whether key-entry services
performed by an outside temporary service agency are subject to New York State sales and use tax.
Petitioner makes the following submission of facts.
Petitioner contracts with an outside temporary service company, who provides Petitioner with
temporary service personnel (hereinafter referred to as "temps"). These temps key-enter various
manual records into Petitioner's computer system. The manual records include driver and
administrative time cards, collect on delivery (C.O.D.) information used to unite funds collected
from consignees with appropriate shippers, and package pick-up records used for billing Petitioner's
shippers.
The employee time cards represent the time worked by each of Petitioner's employees for the
week. The temps key-enter the information recorded on the time cards into Petitioner's computerized
payroll system. Once entered, a payroll supervisor of Petitioner will perform additional steps on the
computer system for the purpose of generating payroll checks.
The C.O.D.s represent cash and checks collected from the recipient by Petitioner's drivers.
This is an additional service Petitioner provides for its shippers. At the various New York State
accounting locations of Petitioner, the temps key-enter the information reflected on the C.O.D. turn­
in stubs into Petitioner's computer system. Once entered, a C.O.D. supervisor will perform additional
steps on the computer system for the purpose of generating C.O.D. remittance information. This
information is then utilized by Petitioner's centralized C.O.D. facility located in Paramus, New
Jersey for the purpose of remitting the funds back to the appropriate shippers.
Petitioner's package pick-up records represent the billing detail collected by its drivers from
the shippers. The temps key-enter the information recorded on Petitioner's pick-up record into its
computerized billing system. Once entered, a billing supervisor will perform additional steps on the
computer system for the purpose of generating customer bills.
All services provided by the temps are performed at Petitioner's locations and on its
computers. It should be noted that, upon completion of the contracted service, no tangible property
is exchanged, created or altered. To achieve the desired result (i.e., payroll check, C.O.D. remittance
information and customer's bill), additional processing steps must be conducted by Petitioner's
personnel.

-2­
TSB-A-96 (50)S
Sales Tax
August 19, 1996

Section 1105 of the Tax Law provides, in pertinent part, as follows:
Imposition of sales tax.-- ...there is hereby imposed and there shall be paid a tax
...upon:
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed
matter or by duplicating written or printed matter in any other manner, including the
services of collecting, compiling or analyzing information of any kind or nature and
furnishing reports thereof to other persons, but excluding the furnishing of
information which is personal or individual in nature and which is not or may not be
substantially incorporated in reports furnished to other persons, ....
(2) Producing, fabricating, processing, printing or imprinting tangible
personal property, performed for a person who directly or indirectly furnishes the
tangible personal property, not purchased by him for resale, upon which such services
are performed.
Technical Services Bureau Memorandum TSB-M-87(13)S, Taxability of Services Provided
by Temporary Service Contractors, states, in part:
Temporary service contractors can be distinguished from employment agencies in
that the temporary service contractor, unlike the employment agency, is the employer
of its own staff and is directly responsible for the salaries, withholding of taxes, and
the hiring and firing of the individuals who are rendering services to its clients. In
addition, the temporary service contractor controls to which of its clients the
individual will be assigned ....
Section 1105(c) of the Tax Law imposes a tax on certain services. ... When a
temporary service contractor provides personnel to perform such taxable services for
its client, the fee paid by the client for these services constitutes a receipt subject to
tax. Accordingly, the temporary service contractor is required to collect sales tax on
the fee charged to the client for such taxable services, regardless of how the charge
is arrived at or how much the contractor is required to pay its personnel .... If the
services performed by the temporary service contractor's employee are not subject to
tax under Section 1105(c) of the Tax Law, then no tax is to be collected on the charge
for these services ....
Since the temps in this case are provided to Petitioner by a temporary service contractor,
charges for the services performed by the temps will be taxable if the services are among the taxable
services enumerated in Section 1105(c) of the Tax Law.

-3­
TSB-A-96 (50)S
Sales Tax
August 19, 1996

Based on the facts presented, charges for the temporary employees (temps) working at
Petitioner's work location and using Petitioner's equipment are not subject to sales tax. The
temporary service company is not selling tangible personal property taxable under Section l105(a)
of the Tax Law, nor are the temps providing any of the taxable services enumerated under Section
1105(c) of the Tax Law. Since the temps do not furnish new information to Petitioner, they do not
provide an information service taxable under Section 1105(c)(1) of the Tax Law. Since the temps
do not effect a change in any tangible personal property furnished by Petitioner, they do not provide
a processing, printing or imprinting service taxable under Section 1105(c)(2) of the Tax Law.

DATED: August 19, 1996

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.