Is the pay to a part-time worker in my department subject to Texas sales tax, and when does hiring outside help become taxable?

Plain-English summary

A business asked whether it owed Texas sales tax on the pay it gave a part-time worker in its advertising department. The worker was paid by the hour (not per service), received no federal tax withholding and no employee benefits, and did whatever tasks were needed week to week — layout design, proofreading, calling printers for bids, hand-lettering signs. The business supplied all the equipment and materials and decided what work she did while on the clock.

The Comptroller's conclusion: for sales-tax purposes she is acting as the company's employee, so her salary is not taxable. The lack of tax withholding and benefits did not change that; what mattered was that she worked under the company's direction and control, using the company's supplies and equipment.

The Comptroller then drew the contrast: if instead you hire someone who provides a taxable service in the regular course of their own business, sales tax is due on the charge. The example given — hiring a janitorial firm to clean your office building — is a taxable service, so the janitorial firm must collect sales tax on its charge to you.

What this means for you

Businesses using part-time or temporary help

Paying a worker who functions as your employee — working under your direction, on your premises, with your tools — carries no sales tax on the wages, even if you don't withhold taxes or provide benefits. The absence of a W-2 relationship on paper does not automatically create a taxable "service."

Buying services from an outside business

The tax turns on whether the outside provider is performing a taxable service in the regular course of its business. A firm that provides a taxable service (like janitorial/building cleaning) must charge you sales tax on its fee. Distinguish that from labor of someone who is effectively your employee.

Common questions

Q: Do I owe Texas sales tax on wages paid to a part-time worker in my department?
A: No. If the worker acts as your employee — working under your direction with your supplies and equipment — the salary is not subject to sales tax.

Q: Does it matter that I don't withhold taxes or provide benefits?
A: No. The Comptroller still treated the worker as an employee for sales-tax purposes based on how the work was directed and supplied.

Q: When is outside help taxable?
A: When you hire someone who provides a taxable service in the regular course of their business. For example, a janitorial firm cleaning your office must collect sales tax on its charge.

Q: Can I rely on this 1988 letter for my own arrangement?
A: Treat it as guidance only. It is based on the specific facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rules and statutes: The letter states the Comptroller's position on employee wages versus purchased taxable services but does not cite a specific rule or Tax Code section by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8810L0916G13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 27, 1988

Dear *****:

Thank you for your letter concerning sales tax on services pro-
vided by a contract employee.

I understand you have hired a person to work part-time in your
advertising department. You do not withhold federal taxes from
her check and do not provide other employee benefits. She is not
paid based on services provided, but on an hourly basis. She does
various tasks week to week on an as needed basis. Among her tasks
are layout design, proofreading, calling printers to obtain bids
and hand lettering signs. You provide all supplies and equip-
ment, and decide which tasks are to be accomplished during the
time she is working.

For sales tax purposes, this person is acting as your employee.
Her salary is not subject to tax. However, if you hire someone
who provides taxable services in the regular course of their
business, tax will be due on the charge for the taxable service.
For example, if your company hires a janitorial firm to clean the
office building, the janitorial firm should collect tax on their
charge to clean the building.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

If you have any questions or need more information, please call
our toll-free number 1-800-531-5441. The regular number is
512/463-4614. You may write me at the Taxability Section, Legal
Services-Division.

Sincerely,
Adina Whittemore
Taxability Section,
Legal Services Division