Current through Register Vol. XLI, No. 38, September 20, 2024
60.1. Services rendered by an employee to his
or her employer are exempt from the consumers sales and service tax and use
tax. On the other hand, services rendered by an employee to his or her employer
which do not fall within the scope of the employee-employer relationship or the
contract of employment, and services rendered by independent contractors are
subject to the consumers sales and service tax and use tax unless some other
exemption provision in Section 9 of these regulations applies.
60.2. There may be situations where the issue
is whether a person is an employee or an independent contractor. Generally, the
relationship is that of employer-employee if the person for whom services are
performed has the right to control and direct the individual who performs the
services, not only as to the result to be accomplished by the work, but also as
to the details and means by which the result is accomplished.
60.3. Following are factors to be considered
when determining the nature of the relationship. The factors are designed to be
only guidelines and where appropriate, the Tax Department will look beyond the
formal aspects of the relationship to determine its substance.
60.3.1. Instructions. - A worker who is
required to comply with other persons' instructions about when, where, and how
he or she is to work is ordinarily an employee.
60.3.2. Training. - Requiring a worker to
receive training shows that the person or persons for whom the services are
performed want the services performed in a particular way.
60.3.3. Integration. - Integrating the
worker's services into the business operations generally shows that the worker
is subject to direction and control.
60.3.4. Services Rendered Personally. - This
shows the person for whom the services are performed is interested in the
methods used to accomplish the work as well as the results, and indicates the
person exercises control.
60.3.5.
Hiring, Supervising, and Paying Assistants. - If a person for whom services are
performed hires, supervises, and pays assistants, this generally shows control
over the workers on the job. But if one worker hires, supervises, and pays the
other assistants pursuant to a contract under which the worker agrees to
provide materials and labor and under which the worker is responsible only for
the attainment of a result, then this indicates an independent contractor
status.
60.3.6. Continuing
Relationship. - This indicates an employer-employee relationship. It may exist
where work is performed at frequently recurring although irregular
intervals.
60.3.7. Set Hours of
Work. - This is a factor indicating control.
60.3.8. Full Time Required. - Shows control
over the amount of time the worker spends working and impliedly restricts the
worker from doing other gainful work. An independent contractor, on the other
hand, is free to work when and for whom he or she chooses.
60.3.9. Doing Work on Employer's Premises. -
Control over the place of work is indicated when the person or persons for whom
the services are performed have the right to compel the worker to travel a
designated route, to canvass a territory within a certain time, or to work at
specific places as required.
60.3.10. Order or Sequence Set. - If the
person for whom the services are performed has the right to establish the
routines and schedules to be followed, that right is a factor indicating
control.
60.3.11. Oral or Written
Reports. - A requirement that the worker submit regular or written reports to
the person for whom services are rendered indicates a degree of
control.
60.3.12. Payment by Hour,
Week, Month. - This indicates an employer-employee relationship provided it's
not just a convenient way of paying a lump sum agreed upon as the cost of a
job. Payment made by the job or on a straight commission generally indicates
that the worker is an independent contractor.
60.3.13. Payment of Business and Traveling
Expenses. - An employer, to be able to control expenses, generally retains the
right to regulate and direct the worker's business activities.
60.3.14. Furnishing Tools and Materials. -
Tends to show an employer-employee relationship.
60.3.15. Significant Investment. - If a
worker invests in facilities that he uses in a performing service and that are
not typically maintained by employees (such as maintaining an office rented at
fair market value from an unrelated party), that factor tends to indicate that
the worker is an independent contractor. Special scrutiny is required for
certain types of facilities, such as home offices.
60.3.16. Realization of Profit or Loss. - For
example, if the worker is subject to a real risk of economic loss due to
significant investments or a bona fide liability for expenses, such as salary
payments to unrelated employees, that factor indicates that the worker is an
independent contractor.
60.3.17.
Working for More Than One Firm at a Time. - This generally indicates an
independent contractor status. However, a worker who performs services for more
than one person may be an employee of each of the persons, especially where
such persons are part of the same service arrangement.
60.3.18. Making Service Available to General
Public. - Doing so on a regular and consistent basis indicates an independent
contractor relationship.
60.3.19.
Right to Discharge. - This is a factor indicating that the worker is an
employee and the person possessing the right to discharge is an employer. An
independent contractor cannot be fired so long as he produces a result that
meets the contract specifications.
60.3.20. Right to Terminate. - If a worker
has the right to quit at any time without incurring liability, this indicates
an employer-employee relationship.
60.4. Temporary Employment Agencies. -
Persons hired by employers through temporary employment agencies are not
considered to be employees within the scope of the exemption. Instead, the
temporary employment agency is considered to be rendering services to the
employer which are subject to consumers sales and service tax unless some other
provision in Section 9 of these regulations applies.
