Attorneys Discuss Tennessee’s Recent Change and Convoluted Evolution Imposing Sales Tax on Temporary Workers

December 20, 2022
Tax Notes State

Bass, Berry & Sims attorneys Mike Sontag, Steve Jasper and Sara Morgan outlined the historical context and newly revised statute addressing how Tennessee sales tax is imposed on temporary workers provided by staffing agencies, specifically in the IT field. As the authors point out, the previous reiterations of the statute had several fundamental problems that left companies struggling with how to apply appropriate tax to these types of workers.

During the 2022 legislative session, the Tennessee General Assembly clarified its stance with amendments to the existing statute. The authors explained the changes, saying: “The 2022 legislative change, once again, allows IT staffing agencies to claim the in-house software exemption and avoid the sales tax on work performed by their employees. The 2022 amendment also expanded the scope of work that qualifies for the exemption. Under the prior versions, the in-house software exemption applied only to software fabrication.”

The attorneys further add, “The 2022 amendment is unquestionably a favorable development that should bring clarity and common sense to the imposition of sales tax on IT staffing companies.”

The full article, “Closing the Loop on Taxing Temporary Services in Tennessee,” was published by Tax Notes State on December 19 and is available online (subscription required).