Tennessee Court Rules on Exemption for Contract Employees

The Tennessee Court of Appeals addressed a taxpayer’s challenge to the Department of Revenue on an assessment of sales taxes assessed on technical staffing services. The taxpayer is in the business of providing information technology professionals to clients for use in software programming. The Tennessee Department of Revenue determined under audit that this transaction qualified as the “sale” of taxable computer software. The court found that the software programmers acted as agents of the clients that they were assigned to and had limited contact with the staffing firm after their initial placement. Due to the nature of their relationship with the client, they contractors were subject to the “in-house” exemption which exempts custom software written by employees of the company using the software. (Teksystems, Inc. v. Farr, Tennessee Court of Appeals, May 11, 2009)

Posted on July 13, 2009