At Madison Resources, it is our hope that we are perceived as a true partner to your staffing firm. To that end, we are always looking to assist you in providing necessary information, to promote accuracy and efficiencies, and make helpful resources available to you.
Recently, a valued staffing client reached out to the Madison team to inquire about Sales Tax on Temporary Employment Services within the State of Texas. Our tax department performed extensive research on the subject as there is specific criteria to determine if the services are taxable or non-taxable.
Temporary employment services may be taxable or nontaxable based on specific criteria outlined by the Texas Comptroller of Public Accounts.
Step 1: Determine if the Service is Taxable
- Nontaxable Services: If the service is not listed as a taxable service under Texas law, no sales tax applies. Review the list of taxable services at: Texas Taxable Services (Note: Verify the URL, as Comptroller links may change.)
- Taxable Services: If the service is listed as taxable, it may still qualify for an exemption if it meets the conditions for a Temporary Employment Service (see below).
Step 2: Criteria for Nontaxable Temporary Employment Services
Under Texas Administrative Code Rule 3.364(d), services performed by temporary employees are exempt from sales tax if all of the following conditions are met:
- The service is normally performed by the host employer’s own employees.
- The host employer uses temporary employees to supplement its workforce.
- The host employer provides all necessary supplies and equipment (except personal protective equipment required by federal law, which may be provided by the temporary employment service).
- The host employer does not rent, lease, purchase, or acquire supplies/equipment (other than personal protective equipment) from the temporary employment service or its affiliated group.
- The host employer has the sole right to supervise, direct, and control the temporary employee’s work to conduct its business or comply with licensing, statutory, or regulatory requirements.
If these conditions are not met, the service is taxable, and sales tax must be collected unless a properly completed blanket exemption certificate is provided by the host employer (see Texas Administrative Code §3.287).
Step 3: Professional Employer Services
Professional employer services (formerly staff leasing) are taxable unless all of the following conditions are met:
- At least 75% of assigned employees were employed by the client company for at least three months immediately before the professional employer services agreement.
- None of the assigned employees were previously employed by:
- The professional employer organization (unless through a co-employment relationship), or
- An entity that provides or previously provided taxable services to the client company.
- A co-employment relationship exists between the client company and the professional employer organization for the assigned employees.
Note: Services performed by independent contractors are not considered professional employer services and may have different tax implications.
Step 4: Tax Responsibilities
- Job Placement or Recruiting Services: These are not subject to sales tax per Rule 3.364(d).
- Taxable Services: If you provide taxable services and fail to collect sales tax, you are responsible for remitting the appropriate use tax to the Texas Comptroller’s office.
- Registration: If your services are taxable, you must register with the Texas Comptroller for sales tax and coordinate with Madison Resources to ensure proper invoicing. Contact our team to set up sales tax correctly on customer invoices.
Due to the complexity of determining taxability based on specific services and contract terms, Madison Resources cannot make taxability determinations. We recommend consulting a tax professional or the Texas Comptroller for clarification.
For more information on taxability:
Texas Taxable Services: https://comptroller.texas.gov/taxes/publications/96-259.php
To access Exemption Certificates: https://comptroller.texas.gov/taxes/sales/forms/
Texas Administrative Code Rule 3.364: https://texas-sos.appianportalsgov.com/rules-and-meetings?$locale=en_US&interface=VIEW_TAC_SUMMARY&queryAsDate=05%2F28%2F2025&recordId=191427
Labor Code – Chapter 93: https://statutes.capitol.texas.gov/Docs/LA/htm/LA.93.htm
Contact Information:
For further information or clarification, contact Texas Comptroller’s Taxpayer Services:
Phone: 800-252-5555
Online: Submit a Question
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