SALT Report 1915 – The Tennessee Department of Revenue issued a private letter ruling regarding the taxability of information technology staffing services. The Taxpayer provides staff augmentation services to various companies in the United States. The workers provided by the Taxpayer supplement a client company’s existing information technology (IT) department by providing services such as software development, help desk operation, data base administration, and business analysis.
The Taxpayer’s business enables its clients to add or remove workers to their existing staffs as needed, thereby avoiding the costs associated with recruiting, training, and hiring new employees with the specialized skills needed for a particular task. This is ideal for situations in which the need for supplemental IT staffing is short-term.
The Department determined the taxability of the staffing services as follows:
- Computer software fabrication or repair and installation services performed by a contract employee supplied by the Taxpayer are subject to sales and use tax. In Tennessee, sales of computer software, which includes software created on the premises of the consumer, are taxable. The exemption for fabrication of software for a person’s own use only applies if the software is fabricated by an employee of the person.
- Software fabrication performed by a contract employee is exempt if the client is an exempt entity.
- If a contract employee performs both taxable and nontaxable services for a client company, the Taxpayer must separately itemize the taxable services in order for the nontaxable services to be exempt.
- Reimbursed travel costs, meal costs, and other expenses incurred by the contract employees in the course of providing services to the client company are considered part of the total sales price. Therefore, if the sale is taxable, the reimbursements are taxable as part of the sales price, and, if the sale is not taxable, the reimbursements are not taxable.
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