Does a hotel owe Texas sales tax on staffing fees it pays a temporary employment service for housekeeping and banquet/catering employees?

Plain-English summary

The Texas Comptroller ruled that a hotel's payments to a temporary employment service for housekeeping and food/beverage staff are exempt from sales tax, applying the four-part test in Tax Code § 151.3503(a)(2) for staffing services that "supplement a host employer's existing work force on a temporary basis." Ordinarily, staffing/employment services can be a taxable service in Texas, but this exemption carves out true supplementary staffing.

The hotel used the temporary agency to fill gaps caused by high housekeeping turnover, and to add banquet/catering staff for special events — on top of its own regular full- and part-time crews in both departments. The Comptroller walked through all four statutory criteria and found each satisfied: (1) housekeeping and food/beverage work is normally performed by the hotel's own regular staff, not something the hotel only ever outsources; (2) the hotel supplies all cleaning supplies, materials, and equipment (the agency provides only uniforms); (3) the hotel doesn't rent or buy equipment from the staffing agency itself; and (4) the hotel's own managers train, direct, schedule, and inspect the temporary workers' output, while the staffing agency's role is limited to HR administration and timekeeping. Because all four boxes were checked, the arrangement qualifies as genuine "supplementing," not a disguised purchase of a taxable cleaning or catering service.

What this means for you

Hotels, hospitality businesses, and other regular users of temp staffing

If you use a staffing agency to fill gaps in departments you already regularly staff yourself (not to permanently outsource a whole function), and you supply the equipment, training, and day-to-day supervision while the agency only handles HR/payroll administration, your staffing fees should qualify for this exemption. Keep records showing your own supervisors direct and inspect the work and that you're not renting equipment from the agency — those are the facts this ruling leaned on most heavily.

Staffing agencies serving hospitality and similar sectors

Understanding this four-part test helps you structure service agreements so clients can claim the exemption where appropriate: keep your role to human-resources support and timekeeping, let the client supply equipment and supervision, and make clear the client maintains its own regular workforce for the same functions.

Accountants and tax professionals

The exemption fails if ANY of the four criteria isn't met — for example, if the staffing agency supplies its own cleaning equipment, or if the client has fully outsourced a function it no longer staffs itself at all (making the "normally performed by host employer's own employees" prong fail). Review actual practice, not just the service contract's language, since the ruling emphasizes real supervisory control and equipment sourcing.

Common questions

Q: Is all temporary staffing exempt from Texas sales tax?
A: No — only staffing that meets all four criteria in § 151.3503(a)(2): work normally done by the host employer's own staff, host-employer-supplied equipment/supplies, no equipment rental from the staffing agency, and host-employer control over supervision and direction.

Q: Does it matter that the temp agency provides uniforms?
A: No — the statute carves out personal protective equipment required by federal law/regulation from the "host employer must supply equipment" requirement; uniforms here didn't break the exemption.

Q: What if the hotel didn't have its own regular housekeeping or banquet staff?
A: The exemption likely would fail the "normally performed by the host employer's own employees" prong — this ruling depends on the hotel maintaining a genuine, existing regular workforce that the temp staff only supplements.

Q: Can another hotel or business rely on this ruling?
A: No. It binds the Comptroller only as to the taxpayer and facts in this specific request and cannot be relied on by any other taxpayer, though the four-factor test it applies comes directly from the statute and is broadly applicable in form.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.010 (taxable item)
• Tex. Tax Code § 151.0101 (taxable services)
• Tex. Tax Code § 151.054 (gross receipts presumed subject to tax)
• Tex. Tax Code § 151.3503(a)(2) (temporary staffing exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201901050L

Original ruling text

January 28, 2019

RE: Private Letter Ruling No. 20180108094721

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated Jan. 5, 2018. Additional information relating to the request was provided on Feb. 27, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of housekeeping and catering services performed by employees of a temporary employment service.

Facts Presented

** (Taxpayer), maintains a staff of full- and part-time housekeeping employees. Taxpayer utilizes a temporary employment service to fill current housekeeping staff positions based on need. The temporary employment service provides uniforms for the temporary housekeeping employees and Taxpayer provides all necessary cleaning supplies, materials, and equipment.

Taxpayer’s management and supervisory staff directly oversee the work performed by the temporary housekeeping employees. For example, when a temporary employee completes an assigned task, one of Taxpayer’s managers or supervisors inspects the work performed. An example Service Proposal provided by Taxpayer indicates that the temporary employment service handles matters related to human resources support and tracking employee time. Taxpayer only pays the temporary employment service provider for the work performed by the temporary employee after reviewing and confirming the information in the timekeeping system used to keep track of employee time.

Taxpayer keeps a regular staff of employees for food and beverage services, including a director of food and beverage, preparation cooks, dishwashers, and banquet servers. Taxpayer also utilizes the temporary employment service to provide additional food and beverage employees for special events. The director of food and beverage contacts the temporary employment service when additional staff is required for special events. Similar to the housekeeping model, Taxpayer provides all necessary equipment.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Are Taxpayer’s purchases of staffing services from a tempororary employment service to provide housekeeping and food and beverage staff taxable?

Ruling: Taxpayer’s purchases of staffing services from a temporary employment service to provide housekeeping and food and beverage staff are exempt from tax under Section 151.3503(a)(2) (Services by Employees).

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (“Taxable Item”). The term “taxable services” includes only those services listed in Section 151.0101 (“Taxable Services”). A seller’s gross receipts are presumed to be subject to sales tax unless the seller accepts a valid resale or exemption certificate from the purchaser. Section 151.054 (Gross Receipts Presumed Subject to Tax).

Section 151.3503(a)(2) exempts from Texas sales and use tax “a service performed by an employee of a temporary employment service for a host employer to supplement the host employer’s existing work force on a temporary basis.”

Taxpayer utilizes a temporary employment service to secure additional housekeeping staff to fill gaps left by high turnover, while additional food and beverage employees are required on an as needed basis for events and banquets, all of which are hired for a limited duration.

In addition to the service being performed on a temporary basis, the staffing service must also meet the following four criteria:

The service must be one that is normally performed by the host employer’s own employees.

The host employer must provide all supplies and equipment necessary to perform the service, other than personal protective equipment provided by the temporary employment service pursuant to a federal law or regulation.

The host employer must not rent, lease, purchase, or otherwise acquire for use the supplies and equipment, other than the personal protective equipment, from the temporary employment service or an entity that is a member of an affiliated group of which the temporary employment service is also a member.

The host employer must have the sole right to supervise, direct, and control the work performed by the employee of the temporary employment service as necessary to conduct the host employer’s business or to comply with any licensing, statutory, or regulatory requirement applicable to the host employer.

Section 151.3503 defines “host employer” as “the employer who owns, manages, or controls the property or worksite where an employee of a temporary employment service performs a service.” Taxpayer meets this definition in relation to the employees provided by the temporary employment service.

The criteria that a service must be normally performed by the host employer’s own employees requires that the host employer maintains a staff capable of performing the service under normal conditions. The temporary employee only supplements the host employer’s regular staff on a temporary basis. Taxpayer maintains a regular staff of full- and part-time housekeeping and food and beverage employees. When housekeeping personnel are required to supplement the work force, Taxpayer contacts the temporary employment service to temporarily fill gaps caused by high turnover. When special events or banquets are held are held at the hotel, Taxpayer contacts the temporary employment service to temporarily bolster their existing staff.

The temporary employment service provides uniforms for the temporary employees. Taxpayer provides all other cleaning supplies, materials, and equipment for both housekeeping and food and beverage personnel, regular or temporary. Taxpayer does not rent, lease, purchase, or otherwise acquire the necessary supplies and equipment from the temporary employment service.

Taxpayer’s management staff supervise the work performed by the temporary employees. Taxpayer provides training to the temporary employees by showing them how to properly clean rooms and public spaces to the hotel’s standards. Taxpayer directs them where to go and when, and inspects the work performed by the employee. The temporary employment service only performs human-resources-related functions and timekeeping.

Taxpayer’s use of temporary housekeeping and food and beverage services meets the four criteria under Section 151.3503(a)(2) because Taxpayer’s regular employees normally perform the services, Taxpayer provides the necessary supplies and equipment, Taxpayer does not rent or purchase the equipment from the temporary employment service, and Taxpayer has the sole right to supervise, direct, and control the work performed by the temporary employees.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20180108094721.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.