SUBJECT: Consumers Salesand Service Tax--Exemption for Services of Employee to Employer--Applicabilityto Service of Employee to Joint Employers

This is in reply to yourcorrespondence wherein you request issuance of a technical assistanceadvisory, as provided in W. Va. Code §11-10-5r, based uponfacts submitted in support of the said request.


Personnel Employer Organization(hereinafter "Company") is a corporation formed to provideemployment services to businesses looking for ways to reduce laborcosts, paperwork and other administrative burdens of having employees. Company will enter into long-term employee leasing agreementswith its clients. The client's employees will then become employeesof Company and will be on Company's payroll and participate inCompany's benefit programs. Company will, in turn, lease theemployees back to the client. Company will be responsible forpayment of payroll taxes, employer withholding taxes, workers'compensation premiums, obtaining group health care insurance forits employees, and preparing and filing necessary tax returnsand other documents. In exchange for its services, Company willreceive a fixed administrative fee per employee/per pay periodand will be reimbursed for all monies disbursed for payroll, employmentand withholding taxes, workers' compensation premiums, or otheremployee benefit payments relating to the leased employees.

Although on Company's payroll,Company's clients will continue to supervise the leased employees. Clients will retain total control over the hiring, firing, wagerates and salary increases of employees. Clients will also beresponsible for training employees and directing their day-to-dayactivities. If a client terminates Company's services, the employeeswill continue to work for the client, presumably on the client'spayroll, and will terminate their employment with Company. Ifa client terminates an employee, the employee will not continueto work for Company. No Company leased employee will work formore than one client, and Company will not maintain an inventoryof temporary employees to send out to its clients on an as neededbasis. Company will not operate a temporary service or laborbroker type business. The employees involved will be the regular,dedicated work forces of Company's clients. While Company willbe the employer of record and will assume significant employer/employeeresponsibility, this arrangement will create a shared employeror co-employer environment with its clients.

In all of the above respects,Company is very different from a temporary services agency ("TempAgency"). Temp Agencies typically hire employees who areavailable to work for any client of the agency on a day-to-daybasis. Temp Agencies control the hiring, firing, wage rates andtraining of their employees. Temp Agencies set the hourly ratesat which employees with specific skills are provided to theirclients. The employees of a Temp Agency may work for many differentclients during a pay period. If a particular client terminatesits relationship with the Temp Agency, the agency's employeesremain with the agency and work for its other clients.

Company requests a rulingfrom the Tax Commissioner that, under the facts set forth forpurposes of this ruling, Company will be required to collect theWest Virginia consumers sales and service tax on its flat per-employee/per-payperiod fees, but will not be required to collect consumers salesand service tax on amounts received from its clients solely toreimburse Company for payroll, employment and withholding taxes,and other employment benefit amounts remitted to Company by itsclients.


The West Virginia consumerssales and service tax (hereinafter "consumers sales tax")is imposed on the sale of tangible personal property in West Virginiaand on the furnishing of selected services. Selected servicesis defined in W. Va. Code § 11-15-2(s) to exclude servicesrendered by an employee to his or her employer.

As described in detail above,Company will enter into long-term employee leasing arrangementswith its clients. Company will prepare periodic payrolls, prepareand file required withholding and other employment returns, andperform other required administrative functions. Company willreceive a fixed administrative fee per employee/per pay periodas its compensation for providing these services. Company willalso be reimbursed for payroll, employment and withholding taxes,and other employment benefit amounts attributable to the leasedemployees. Company argues that no consumers sales tax is duewith respect to such reimbursements from clients because suchamounts constitute reimbursements to Company for monies paid onbehalf of its clients for services rendered by an employee tohis or her employer.

Company suggests that consumerssales tax should not be collected when: (1) the contract betweenCompany and its client, pursuant to which employee leasing servicesare provided, is in writing and of at least one year's duration;and (2) the employees whose wages and benefits are reimbursedare assigned to the client on a permanent basis.

Section 110-15-60 of legislativerules for consumers sales tax sets forth the analysis to be usedwhen determining whether or not, for consumers sales tax purposes,an employee and employer relationship exists, as distinguishedfrom the independent contractor and principal relationship. Thissection is based upon the common law analysis of the employer/employee(master/servant) relationship and reads:


110-15-60. Employee or Independent Contractor

60.1 Services renderedby an employee to his or her employer are exempt from the consumerssales and service tax and use tax. On the other hand, servicesrendered by an employee to his or her employer which do not fallwithin the scope of the employee-employer relationship or thecontract of employment, and services rendered by independent contractorsare subject to the consumers sales and service tax and use taxunless some other exemption provision in Section 9 of these regulationsapplies.

60.2 There may be situationswhere the issue is whether a person is an employee or an independentcontractor. Generally, the relationship is that of employer-employeeif the person for whom services are performed has the right tocontrol and direct the individual who performs the services, notonly as to the result to be accomplished by the work, but alsoas to the details and means by which the result is accomplished.

60.3 Following are factorsto 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 therelationship to determine its substance.

60.3.1 Instructions. - A worker who is required to comply with other persons' instructionsabout when, where, and how he or she is to work is ordinarilyan employee.

60.3.2 Training. - Requiring a worker to receive training shows that the personor persons for whom the services are performed wants the servicesperformed in a particular way.

60.3.3 Integration. - Integrating the worker's services into the business operationsgenerally shows that the worker is subject to direction and control.

60.3.4 Services RenderedPersonally. - This shows the person for whom the servicesare performed is interested in the methods used to accomplishthe work, as well as the results, and indicates the person exercisescontrol.

60.3.5 Hiring, Supervising,and Paying Assistants. - If a person for whom services areperformed hires, supervises, and pays assistants, this generallyshows control over the workers on the job. But if one workerhires, supervises, and pays the other assistants pursuant to acontract under which the worker agrees to provide materials andlabor and under which the worker is responsible only for the attainmentof a result, then this indicates an independent contractor status.

60.3.6 ContinuingRelationship. - This indicates an employer-employee relationship. It may exist where work is performed at frequently recurringalthough irregular intervals.

60.3.7 Set Hours ofWork. - This is a factor indicating control.

60.3.8 Full Time Required. - Shows control over the amount of time the worker spends workingand impliedly restricts the worker from doing other gainful work. An independent contractor, on the other hand, is free to workwhen and for whom he or she chooses.

60.3.9 Doing Workon Employer's Premises. - Control over the place of workis indicated when the person or persons for whom the servicesare performed have the right to compel the worker to travel adesignated route, to canvass a territory within a certain time,or to work at specific places as required.

60.3.10 Order or SequenceSet. - If the person for whom the services are performedhas the right to establish the routines and schedules to be followed,that right is a factor indicating control.

60.3.11 Oral or WrittenReports. - A requirement that the worker submit regularor written reports to the person for whom services are renderedindicates a degree of control.

60.3.12 Payment byHour, Week, Month. - This indicates an employer-employeerelationship provided it's not just a convenient way of payinga lump sum agreed upon as the cost of a job. Payment made bythe job or on a straight commission generally indicates that theworker is an independent contractor.

60.3.13 Payment ofBusiness and Traveling Expenses. - An employer, to be ableto control expenses, generally retains the right to regulate anddirect the worker's business activities.

60.3.14 FurnishingTools and Materials. - Tends to show an employer-employeerelationship.

60.3.15 SignificantInvestment. - If a worker invests in facilities that heuses in a performing service and that are not typically maintainedby employees (such as maintaining an office rented at fair marketvalue from an unrelated party), that factor tends to indicatethat the worker is an independent contractor. Special scrutinyis required for certain types of facilities, such as home offices.

60.3.16 Realizationof Profit or Loss. - For example, if the worker is subjectto a real risk of economic loss due to significant investmentsor a bona fide liability for expenses, such as salary paymentsto unrelated employees, that factor indicates that the workeris an independent contractor.

60.3.17 Working forMore Than One Firm at a Time. - This generally indicatesan independent contractor status. However, a worker who performsservices for more than one person may be an employee of each ofthe persons, especially where such persons are part of the sameservice arrangement.

60.3.18 Making ServiceAvailable to General Public. - Doing so on a regular andconsistent basis indicates an independent contractor relationship.

60.3.19 Right to Discharge. - This is a factor indicating that the worker is an employeeand the person possessing the right to discharge is an employer. An independent contractor cannot be fired so long as he producesa result that meets the contract specifications.

60.3.20 Right to Terminate. - If a worker has the right to quit at any time without incurringliability, this indicates an employer-employee relationship.

60.4 Temporary EmploymentAgencies. - Persons hired by employers through temporaryemployment agencies are not considered to be employees withinthe scope of the exemption. Instead, the temporary employmentagency is considered to be rendering services to the employerwhich are subject to consumers sales and service tax unless someother provision in Section 9 of these regulations applies.

Comparison of the factspresented for purposes of this advisory with the factors listedin this legislative rule discloses that, except for payment ofwages to the workers for their services, the factors indicateexistence of an employee/employer relationship between the clientand the employee:

(1) Instructions. -- These employees will take their instructions from the clientabout when, where, and how they are to work.

(2) Training. -- The client will train these employees, and Company will not.

(3) Integration.-- The worker's services will be integrated into the clients'business operations, but not into the operations of Company, andthe employees will be subject to the direction and control ofthe clients.

(4) Services RenderedPersonally. -- Employees will render their services solelyfor a particular client. Methods used to accomplish the work,as well as the results of that work, are controlled solely bythe client.

(5) Hiring, Supervising,and Paying Assistants. -- The clients hire and superviseemployees, but only indirectly pay employees. The clients generallycontrol the workers on the job. Company does not interview, hireor supervise the employees. There is no contract under which Companyagrees to provide materials and labor for the accomplishment ofa given task. However, Company pays employees directly and isreimbursed by the client.

(6) Continuing Relationship. -- There is a continuing relationship between the clients andthe leased employees which will survive termination of the contractfor services between the client and Company. The contract betweenCompany and clients is itself a long term contract.

(7) Set Hours of Work. -- The clients set hours of work for employees.

(8) Full Time Required. - The request for this technical assistance advisory is silenton whether any distinction will be made between full-time versuspart-time employees. Presumably, clients, in determining workhours, will control full-time and part-time scheduling. However,no Company employee will work for more than one client.

(9) Doing Work on Employer'sPremises. -- The clients, and not Company, will have exclusivecontrol over the place of work, and clients will presumably havethe right to compel the worker to travel a designated route, tocanvass a territory within a certain time, or to work at specificplaces as required.

(10) Order or SequenceSet. -- The clients, and not Company, have the right toestablish the routines and schedules to be followed by employees.

(11) Oral or WrittenReports. -- The request for this technical assistance advisoryis silent as to whether Company will require any reporting fromthe leased employees. However, the arrangement between Companyand its clients clearly leaves each client with the authorityto require employees to submit regular oral or written reportsto the client, should a client choose to impose such a requirement.

(12) Payment by Hour,Week, Month. -- The described arrangement clearly anticipatesperiodic payments to employees, rather than lump sum payments. However such payments will be made by Company, which will bereimbursed by client.

(13) Payment of Businessand Traveling Expenses. -- The request for this technicalassistance advisory is silent on how employee travel and businessexpenses will be handled. However, the described arrangementdoes not prohibit such reimbursements between clients and employees,or between Company and the employees through the payment mechanismdescribed in the request for this technical assistance advisory.

(14) Furnishing Toolsand Materials. -- The request for this technical assistanceadvisory is silent on who furnishes the tools, equipment andsupplies. However, consistent with the concept of the employeesworking at the client's premises and at the client's direction,it is logical to assume that the client or the employee, and notCompany, will supply necessary tools, equipment and supplies.

(15) Significant Investment. -- The request for this technical assistance advisory contemplatesclient investment in or proprietary control of, facilities whereemployee services are to be rendered, rather than investment infacilities by employees. It does not appear that Company willhave any investment interest in facilities of their clients.

(16) Realization ofProfit or Loss. -- The potential for profit and loss fallsupon the clients and Company in their respective roles, and notupon employees, who will be paid salaries or wages.

(17) Working for MoreThan One Firm at a Time. -- Although Company will have contractswith several clients no leased employee will work for more thanone client.

(18) Making ServiceAvailable to General Public. -- Company's services willbe offered to the general public, and clients will presumablybe businesses generally offering their goods and services on thepublic market. However, the contracts between the clients andCompany will provide that no leased employee will work for morethan one client.

(19) Right to Discharge. -- The right to discharge a leased employee will reside solelywith the client.

(20) Right to Terminate. -- Although this request for a technical assistance advisoryis silent on this issue, leased employees will presumably havethe right to quit at any time, in accordance with resignationpolicies of the client.

Given the authority andcontrol which Company's clients have over employees leased bythe client, we believe Company and its clients are joint employersof the employees Company leases to the client.

We now address how servicesof an employee rendered to his or her joint employer are treatedfor consumers sales tax. We begin with the definition of selectedservice in W. Va. Code § 11-15-2(s) which reads:

"Selected service"is defined in W. Va. Code § 11-15-2(s) to include:

"Service" or"selected service" includes all nonprofessional activitiesengaged in for other persons for a consideration, which involvethe rendering of a service as distinguished from the sale of tangiblepersonal property, but shall not include contracting, personalservices or services rendered by an employee to his employeror any service rendered for resale.

"Personal service"is defined in W. Va. Code § 11-15-2(m) to include those:

(1) Compensated by thepayment of wages in the ordinary course of employment; and

(2) Rendered to the personof an individual without, at the same time, selling tangible personalproperty, such as nursing, barbering, shoe shining [while shoeson customer], manicuring and similar services. (Emphasis added.)

The measure of tax are grossproceeds which the vendor receives from selling tangible personalproperty or dispensing certain selected services in this State. "Gross proceeds" is defined in W. Va. Code § 11-15-2(i)to mean:

the amount received inmoney, credits, property or other consideration from sales andservices within this state, without deduction on account of thecost of property sold, amounts paid for interest or discountsor other expenses whatsoever. Losses shall not be deducted, butany credit or refund made for goods returned may be deducted.

The consumers sales taxlaw does not define the term "employee," "employer,""wages," or "ordinary course of employment." Legislative rules for the consumers sales tax do define and discuss,at length, the term "employer" for purposes of distinguishingbetween an employee and an independent contractor.

For consumers sales taxpurposes, services furnished by an employer to his or her employerpursuant to his or her contract of employment with that employerthat are compensated by the payment of wages are "personalservices," as defined in W. Va. Code § 11-15-2(m). As such, the services are not "selected services," asdefined in W. Va. Code § 11-15-2(s), and, therefore, arenot subject to consumers sales tax.

However, the definitionof "selected services" excludes both "personalservices" and "services rendered by an employee to his[or her] employer." The question becomes whether in thedefinition of "selected service" the words "servicesrendered by an employee to his employer" are surplus verbiagebecause such services are embodied in the definition of "personalservices," or does "services rendered by an employeeto his employer" have a larger meaning and, thereby, includeservices of a leased employee to his or her joint employer.

As enacted in 1937, theconsumers sales tax law defined the term "personal service"to include "(a) [those] compensated by the payment of wagesin the ordinary course of employment" and defined "selectedservices" to exclude "professional and personal services,and . . . services furnished by corporations subject to the controlof the public service commission and the state road commission." W. Va. Code §§ 11-15-2(11)(a) and 11-15-8 [1937].

In 1939, section 11-15-2of the consumers sales tax law was rewritten. While the numberingof the definition of personal service changed, the text of thedefinition did not change. At that same time, a definition wasadded in section 11-15-2 for the term "selected service":

(11) "Service, orselected service" shall include all non-professional activitiesengaged in for other persons for a consideration which involvethe rendering of a service as distinguished from the sale of tangiblepersonal property, but shall not include personal servicesor the services rendered by an employee to his employeror any service rendered for resale. (Emphasis added.)

The text of the definitionof "selected service" was last amended in 1987 by includinga specific exception for contracting services. After amendment,section 11-15-2(i) read:

(i) "Service, orselected service" shall include all nonprofessional activitiesengaged in for other persons for a consideration, which involvethe rendering of a service as distinguished from the sale of tangiblepersonal property, but shall not include contracting, personalservices or the services rendered by an employee to his employeror any service rendered for resale. (Emphasis added.)

In 1994, the definitionsin section 11-15-2 were placed in alphabetical order, resultingin the definition of "service" or "selected service"being moved to subsection 11-15-2(s). As previously observed,the consumers sales tax law does not define the term "employee"or "employer."

In Woodell v. Dailey,160 W.Va. 65, 230 S.E.2d 466 (1976), the issue before the courtwas whether services of an interior decorator are professionalservices exempt from consumers sale tax or are taxable services. The case was difficult because the consumers sales tax law didnot define either "professional services" or "nonprofessionalactivities." The court wrote, at page 469 (S.E.2d):

The absence of such definitionsmakes it impossible for us to say that this statute is clear andunambiguous. Consequently, there is no room for the applicationof the well-recognized principle that a statute which is clearand unambiguous should be applied and not construed. See TaxComm'r v. Veterans of Fgn. Wars, 147 W.Va. 645, 129 S.E.2d921 (1963). See also Eggleton v. State Workmen's CompensationComm'r, W.Va., 214 S.E.2d 864 (1975); Russell Transfer,Inc. v. Moore, W.Va., 212 S.E.2d 433 (1975), and Statev. Carman, 145 W.Va. 635, 116 S.E.2d 265 (1960).

Generally, tax laws arestrictly construed, and when there is doubt regarding the meaningof such laws they should be construed in favor of the taxpayer. See State ex rel. Battle v. Baltimore and Ohio Railway Co.,149 W.Va. 810, 143 S.E.2d 331 (1965), cert. denied, 384U.S. 970, 86 S.Ct. 1859, 16 L.Ed.2d 681 (1966), and State v.Carman, supra. However, a tax law under which a person claimsan exemption is strictly construed against the person claimingthe exemption. Owens-Illinois Glass Co. v. Battle, 151W.Va. 655, 154 S.E.2d 854 (1967); Tax Comm'r v. Veterans ofFgn. Wars, supra, and State v. Carman, supra.

In interpreting the statuteinvolved in this case, we are guided by and apply the followingprinciples of statutory construction: (1) Effect should be givento the spirit, purpose and intent of the lawmakers without limitingthe interpretation in such a manner as to defeat the underlyingpurpose of the statute; See Tax Comm'r v. Veterans of Fgn.Wars, supra; (2) Each word of a statute should be given someeffect and a statute must be construed in accordance with theimport of its language; See Wilson v. Hix, 136 W.Va. 59,65 S.E.2d 717 (1951), and Fielder and Turley v. Adams ExpressCo., 69 W.Va. 138, 71 S.E. 99 (1911); (3) Undefined wordsand terms used in a legislative enactment will be given theircommon, ordinary and accepted meaning; See Davis v. Hix,140 W.Va. 398, 80 S.E.2d 404 (1954), and Miners v. Hix,123 W.Va. 637, 17 S.E.2d 810 (1941); and (4) If technical wordsare involved they will be presumed to have been used in a technicalsense and will ordinarily be given their strict meaning; SeeLane v. Board of Education of Lincoln County, 147 W.Va. 737,131 S.E.2d 105 (1963).

Applying these principles,we believe the consumers sales tax law demonstrates clear legislativeintent to exclude from the definition of "selected service"both personal services, which includes those compensated by thepayment of wages in the ordinary course of employment, W. Va.Code § 11-15-2(m), and services rendered by an employee tohis or her employer, W. Va. Code § 11-15-2(s).

In Woodell, the courtfound that "[a] legislative enactment which uses an undefinedterm referring generally to professions or professional serviceswill and should be considered as having been used in its broadestmodern technical and general sense. We consider the expression'professional services' to have been so used in the taxing statuteinvolved in this case. Thus, we do not limit 'professional services'merely to services performed in the practice of law, theologyor medicine or in the pursuit of occupations specifically recognizedas professions by statute. Other professions are clearly contemplatedby the taxing statute here involved. However, any such otherprofession must be clearly established as a profession by theone who asserts that services rendered by him in connection therewithare 'exempt' or 'excepted' and hence not taxable." 230 S.E.2dat 470.

Like Woodell, thelegislative enactment involved here uses undefined terms, referringgenerally to "employer" and to "services renderedby an employee to his employer." Like the phrase "professionalservices," "services rendered by an employee to hisemployer" should be considered as having been used in itsbroadest modern technical and general sense. When so construed,the phrase "services rendered by an employee to his employer"is not limited to "services compensated by the payment ofwages in the ordinary course of employment." Thus, thestatute clearly contemplates that an employee may have more thanone employer and that the services rendered to each are exemptfrom consumers sales tax.

Clearly, the contract betweenCompany and its client is for the provision of contract servicesfor which Company will receive gross proceeds which are the sumof (1) the gross payroll of the employees leased to the client,(2) payroll taxes attributable to such gross payroll, (3) workerscompensation premiums attributable to the employees leased tothe client, (4) reimbursement of costs paid by Company for employeebenefits of the employees leased to the client, such as a grouphealth coverage, and (5) an administrative fee which includesCompany's profit. In many respects, the reimbursement is notunlike that typically found in a cost plus arrangement.

The contract between Companyand its client will give the client considerable authority andcontrol over the leased employee. This control and authorityis such that if there was no common law employee/employer relationshipbetween Company and the leased employee, the client would be thecommon law employer for consumers sales tax purposes. Moreover,if the client terminates the services of the leased employee,that employee's employment with Company is also terminated; andif the client terminates its contract with Company, the employmentrelationship Company has with the employees leased to that clientis also terminated and the leased employees go back on the payrollof the client.

Under the facts presentedhere, Company is the common law employer of the leased employees. However, the facts disclose that the clients of Company are alsoemployers of the employees leased to them due to the authorityand control they have over the leased employees and that the servicesof the leased employees are for the benefit of both employers. As such, Company is the general employer and Company's clientsare special employers of the leased employees. As such, Companyand its clients are joint employers of the leased employees.


Based upon the specificfacts presented for purposes of this advisory and the precedingdiscussion, the Tax Commissioner rules:

1. A person who is not thecommon law employer of the leased employee and for whom a leasedemployee performs services under factual circumstances like thosehere, where but for the existence of the common law employer/employeerelationship between the leased employee and the General employer,the leased employee would be the common law employee of the Specialemployer, the leased employee will also be treated as the employeeof the Special employer for purposes of the consumers sales andservice tax. Therefore, the Company will not be required to collectconsumers sales and service tax on amounts received from its clientssolely to reimburse Company for payroll, employment and withholdingtaxes, and other employment benefit amounts remitted to Companyby its clients. Company will be required to collect and remittax on its gross proceeds attributable to its administrative servicesincluding any profit.

2. The term "leasedemployee" means, for purposes of the consumers sales andservice tax, any person who is the common law employee of hisor her leasing organization (General employer), who is not thecommon law employee of the recipient organization (Special employer),and who provides employee services to the recipient if--

a. such services are providedpursuant to a written agreement between the recipient (Specialemployer) and the leasing organization (General employer) lastingfor more than one year,

b. at least fifty percentof the leased employees performed such services for the recipient(or for the recipient and related persons as defined for purposesof section 414(n) of the Internal Revenue Code of 1986, as amended),on substantially a full-time basis in a permanent employment positionof the recipient that existed for a period of at least one yearprior to execution of the employee leasing agreement and the restof the employees leased to the recipient fill permanent employmentpositions with that recipient. As used here, "permanentemployment position" means a position intended by the recipientto last for more than one year that is neither a temporary norseasonal position,

c. the services of theleased employee for the Special employer are of a type historicallyperformed, in the business field of the recipient (Special employer),by its employees, and

d. if the Special employerhad a qualified pension plan as defined for federal income taxpurposes, whether or not the Special employer has such a plan,the leased employees must be included in the plan for the planto be a qualified plan.

Conclusions reached in thistechnical assistance advisory are based upon the facts submittedand application of current law. In the event there is a materialchange in the facts, or if it is determined that material factswere omitted or are materially different from those furnishedto us for purposes of this ruling, or there is a material changein the applicable law, the conclusions reached in this advisorymay no longer apply.

Declaration of PresidentialValue. -- UnderW. Va. Code §11-10-5r(b), a technical assistance advisoryhas no precedential value, except to the taxpayer who requeststhe advisory, unless the Tax Commissioner specifically statesthat it has precedential value. Due to the specialized natureof the question presented for ruling, this technical assistanceadvisory is declared to have no precedential value, and may notbe relied upon by any person other than the specific taxpayerthat requested the advisory.

Publication. --Under W. Va. Code §11-10-5r(e), the Tax Commissioner is requiredto release Technical Assistance Advisories to the public afterthey are modified to delete identifying characteristics. Thisadvisory will be released as Technical Assistance Advisory 95-008.

Issued: December 18, 1995 James H. Paige III

Secretary/Tax Commissioner