Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-20 - Excise tax rules › Section 458-20-274 - Staffing services

Current through Register Vol. 24-14, July 15, 2024
(1)
Introduction.
This section explains the application of business
			 and occupation (B&O) tax, public utility tax (PUT); and the retail sales
			 tax collection responsibilities of staffing businesses providing staffing
			 services.
(2)
To whom does
			 this section apply?
This section applies to any person engaged in the
			 business activity of providing staffing services. This section does not apply
			 to persons providing professional employer services. Persons providing
			 professional employer services should refer to
			 RCW
			 82.04.540 for information on their
			 tax-reporting responsibilities.
(3)
What is the definition of a staffing business and staffing
			 services?
A "staffing business" is a person engaged in the business
			 activity of providing staffing services. "Staffing services" means services
			 consisting of a person:
Recruiting and hiring its own employees;
Finding other organizations that need the services of those
				employees;
Assigning those employees on a temporary basis to perform work
				at or services for the other organizations to support or supplement the other
				organizations' work forces, or to provide assistance in special work situations
				such as, but not limited to, employee absences, skill shortages, seasonal
				workloads, or to perform special assignments or projects, all under the
				direction and supervision of the customer; and
Customarily attempting to reassign the employees to other
				organizations when they finish each assignment.
(4)
Generally, what kinds of business
			 activities are workers assigned by a staffing business?
Business
			 activities may include, but are not limited to, services rendered with respect
			 to:
Construction (both custom and speculative);
Customer software design and implementation;
Manufacturing and light industrial activities;
Professional services including medical and clerical;
				and
Other skilled and unskilled labor.
(5)
Is the gross income received by a
			 staffing business subject to Washington tax?
Yes, the gross income
			 received by a staffing business is subject to B&O and/or PUT tax.
(6)
Is the tax paid by a staffing
			 business or is the tax collected from the client to whom the workers are
			 assigned?
B&O tax and/or PUT are paid by the staffing
				business.
When the activity of the assigned worker is a retail sale,
				retail sales tax must be collected from the client unless a specific exemption
				or exclusion, such as the activity being a sale for resale, applies. The
				collected tax is paid by the staffing business to the department.
(7)
May a staffing business
			 deduct payroll and other business expenses from gross income?
Chapters 82.04
				and 82.16 RCW
				provide limited deductions from the B&O tax and PUT.
The requirements of each specific deduction or exemption must
				be met to qualify for the deduction or exemption.
Generally, amounts paid to the worker, amounts deducted for
				payroll taxes, or any other expenses paid or accrued may not be deducted by a
				staffing business.
But income received for work performed outside the state may be
				deducted from gross income for B&O tax purposes. Similarly, an interstate
				haul is deducted from the PUT.
Bad debts on which tax has been paid and which may be written
				off for federal tax purposes may be deducted from the gross income of both
				B&O and PUT.
Exemptions, deductions and special tax rates that may apply to
				the client do not automatically also apply to the staffing business.
Example 1.
- Under the Revenue Act, certain nonprofit hospitals may
				qualify for a B&O tax deduction for income received through
				medicare.
- Also, nonprofit and public hospitals are taxable under a
				special B&O tax classification.
- However, because the staffing business does not meet the
				criteria for the B&O tax deduction for income received through medicare or,
				for the B&O tax special nonprofit hospital classification, the income
				received by a staffing business from assigning physicians, nurses, or other
				health care workers to the hospital is taxable under the service and other
				activities classification.
Example 2.
- Similarly, the Revenue Act exempts from B&O tax income
				received by licensed adult family homes.
- However, the gross income received by a staffing business
				from assigning a health care worker to the adult family home is taxable under
				the service and other activities B&O tax classification.
(8)
What if an activity is not subject
			 to sales tax because it is a sale for resale?
When a service that would otherwise be a retail sale is
				performed for a person that resells that service, such as construction work
				performed for a general contractor, sales tax is not collected when the
				staffing business receives a completed resale certificate (WAC
				458-20-102A ) for sales made
				before January 1, 2010, or a reseller permit (WAC
				458-20-102 ) for sales made on or
				after January 1, 2010, from the client reselling the service. Even though
				resale certificates are no longer used after December 31, 2009, they must be
				kept on file by the seller for five years from the date of last use or December
				31, 2014.
When a resale certificate for sales made before January 1,
				2010, or a seller permit for sales made on or after January 1, 2010, is
				received, the staffing business must report such charges for the worker under
				the wholesaling B&O tax classification.
(9)
What is the tax rate?
The B&O tax rate and/or the PUT rate is determined by the
				classification of the activity engaged in by the assigned worker.
The retail sales tax rate is determined, generally, by the
				location of where the retail sale is performed. See WAC
				458-20-145.
(10)
If the B&O tax rate is
			 determined by the B&O tax classification, who determines or identifies the
			 correct classification?
It is the responsibility of the staffing business to determine
				or identify the applicable B&O tax classification for the activity
				performed by the assigned worker.
This determination should be made prior to dispatching the
				worker to the customer.
It is important for the staffing business to know whether
				retail sales tax should be collected from the customer, or if a resale
				certificate, reseller permit, exemption certificate, or other documentation
				should be received from the customer as evidence of a sales tax
				exemption.
(11)
Is
			 the proper B&O tax classification as reported by the staffing business
			 always the same classification as reported by the client customer to whom the
			 worker is assigned?
Regardless of the nature of the customer's business, the
				staffing business looks to the activity engaged in by the worker
				assigned.
The staffing business should not assume that the income it
				receives through the activities of its workers is taxable under the same
				classification that the customer reports.
It is the activity of each worker, not the reporting
				classification of the customer that determines the tax classification.
Example:
- A person operating an insurance agency is taxable under the
				insurance agents B&O tax classification.
- If the staffing business assigns a receptionist for the
				insurance agency, the gross income received for the receptionist's services is
				subject to B&O tax under the service and other activities classification.
				The service classification applies because the receptionist is not providing
				services under the authority of an insurance agent's license.
- However, if the staffing business assigns a worker licensed
				as an insurance agent to an insurance agency, and the licensed insurance agent
				performs services under the authority of his/her license, the related income is
				taxable under the insurance agents B&O tax classification.
(12)
What are the major B&O tax
			 classifications?
The major B&O tax classifications
			 include:
Retailing.
Wholesaling.
Manufacturing.
Processing for hire.
Service and other activities.
Stevedoring.
Travel agent activities.
(13)
Where can I get a description of
			 the activities included in the major B&O tax classification? Where can I
			 get a complete list of the B&O tax classifications and more
			 information?
The department's
Staffing Industry
				Guide
provides detailed information on the staffing industry
				and includes a description of the activities included in the major B&O tax
				classifications. The
Staffing Industry Guide
is located on the department's web site
http://dor.wa.gov/
A complete list of the B&O tax classifications and more
				information about the B&O and PUT can be found on the department's web site
http://dor.wa.gov/
(14)
What is the public utility tax
			 (PUT)?
What are the major classifications of PUT?
The public utility tax is a tax on gross receipts, similar to
				the B&O tax.
It applies to most utility services, such as water, power, and
				gas distribution, and sewerage collection.
It also applies to providing transportation of persons or
				property for hire within five miles of the city limits (urban transportation
				classification) and beyond (motor transportation classification).
- These classifications apply whether or not the person
				performing the work owns the vehicle with which the activity is being
				performed.
- Examples include taxi cab service, limousine service, and
				hauling goods belonging to others (hauling for hire).
(15)
How is income reported when the
			 assigned worker is engaging in more than one activity?
An assigned worker provided by a staffing business to a client
				may engage in several different activities while on the same job.
The different activities may be taxable under separate B&O
				tax and/or PUT classifications.
If the staffing business separates the amounts it charges the
				client by activities, the separated charges are reported.
If the staffing business does not separate its charge to the
				client the charge is reported under the classification of the predominant
				activity.
"Predominant activity" for two worker activities is when more
				than fifty percent of the worker's time is spent working in one tax classified
				activity.
"Predominant activity" for more than two worker activities is
				the activity the worker spends the greatest amount of time doing.
When two or more workers, engaged in different activities, are
				assigned to one client, the charge for each worker is reported based on the
				predominant activity of each individual worker.
Example 1:
- A staffing business assigns a housekeeper whose primary job
				is to clean an apartment (subject to the service and other activities B&O
				tax classification).
- The job also calls for the housekeeper to prepare one meal
				per day (subject to retailing B&O tax and retail sales tax).
- The majority (over half) of the time spent is associated with
				the housekeeping service (apartment cleaning - subject to the service and other
				activities B&O tax classification).
- No segregated charge is made for the preparation of the
				meal.
- In this case, the predominant activity is cleaning the
				apartment.
- Therefore, the gross income received by staffing business
				from the charge to the client is reportable under the service and other
				activities B&O tax classification. Retail sales tax will not apply.
Example 2:
- A staffing business assigns a construction worker to a client
				that is a developer/property owner performing construction-related services
				(subject to retailing B&O tax and retail sales tax).
- The assigned worker has a commercial driver's license and is
				only occasionally required to drive the client's truck within the city to pick
				up a load of gravel (an activity subject to the urban transportation PUT
				classification).
- The worker also spends about one hour per day helping in the
				office.
- The predominant activity is the retailing activity of
				performing construction work because the greatest amount of time is spent
				performing retailing construction work.
- The staffing business has not segregated charge for the other
				lesser activities.
- In this case, the staffing business reports the gross amount
				charged to the client under the retailing B&O tax classification.
				Additionally, the staffing business must also collect from the client retail
				sales tax measured by the gross charge to the client.
Example 3:
- Same facts as Example 2, except the staffing business also
				provides a receptionist to the client (developer/property owner).
- As demonstrated in Example 2, the staffing business is
				subject to the retailing B&O tax on the gross amount charged to the client
				for work done by the construction worker; and retail sales tax must be
				collected on this charge.
- However, the staffing business is subject to service and
				other activities B&O tax on the gross amount charged to the client for the
				receptionist's work. The service and other activities B&O tax
				classification is the proper classification notwithstanding the client reports
				under the retailing classification.
(16)
Is the staffing business required
			 to keep documentation of the activities their assigned workers
			 performed?
The staffing business must keep documentation showing what
				services their assigned workers performed.
All available information should be recorded concurrently with
				the assignment of the worker and the charge for the service.
It is important that the client's labor and skill requirements
				are detailed up front as much as possible prior to dispatch.
This is particularly important for purposes of billing retail
				sales tax.
Documentation may be in the form of a copy of a client order or
				other documented request by a client for a worker.
The documentation must state the specific work to be performed,
				and/or the worker skills requested by the client.
If the client's request comes in by telephone, the staffing
				business should ask exactly what type of services are required and write them
				down on an order form, or as a memo to the client's file.
Also, the worker can provide a written explanation of the
				services actually performed.
Documentation to support the B&O tax classification must be
				sufficiently detailed to support the classification reported.
The classification of primary interest to the client is
				retailing. Only under retailing is the staffing company, as seller of the
				service, required to collect retail sales tax from the client.
Any other classification which does not directly impact the
				client may be of less interest to the client. Nevertheless, because the rates
				may vary between classifications, it is in the person providing staffing
				service's best interest to gather enough information to classify all services
				correctly.
If, subsequent to filing a return, it is later determined that
				income has been incorrectly classified, amended returns should be submitted to
				the department to make the appropriate adjustment.
Statutory Authority:
				  RCW
				  82.32.300,
				  82.01.060(2),
				  chapters
				  82.04,
				  82.08,
				  82.12 and
				  82.32 RCW. 10-06-070, §
				  458-20-274, filed 2/25/10, effective 3/28/10. Statutory Authority:
				  RCW
				  82.32.300 and
				  82.01.060(2).
				  07-17-132, § 458-20-274, filed 8/20/07, effective
				  9/20/07.