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Franchise Tax
Frequently Asked Questions

Note: TTC means Texas Tax Code and IRC means Internal Revenue Code

Staff Leasing Companies

1. What is a staff leasing company?
A staff leasing services company is a business entity that offers staff leasing services, as that term is defined by Labor Code, §91.001, or a temporary employment service, as that term is defined by Labor Code, §93.001.
2. What does a client company of a staff leasing services company include in computing COGS?
A client company may include in COGS the total amount paid to a staff leasing company for assigned employees to the same extent you could have included the amount in cost of goods sold if the client company had employed the assigned employees directly.
3. What does a client company of a staff leasing services company include in computing its compensation?
A client company may include in compensation the wages and cash compensation and benefits paid to a staff leasing company for assigned employees to the same extent you could have included the amount in compensation if the client company had employed the assigned employees directly. A client company cannot include in its compensation any administrative fee, reimbursement for payments made to independent contractors assigned to the client company and reportable on IRS Form 1099, or other fees paid to the staff leasing company.
4. Are there any exclusions from total revenue for a staff leasing services company?
A taxable entity that is a staff leasing services company shall exclude from total revenue payments received from a client company for wages, payroll taxes on those wages, employee benefits, and workers' compensation benefits for the assigned employees of the client company. A staff leasing services company cannot exclude from total revenue payments received from a client company for payments made to independent contractors assigned to the client company and reportable on IRS Form 1099.
5. Does a staff leasing services company include all its employees in computing its compensation?
A staff leasing company shall determine compensation only for the taxable entity's own employees who are not assigned employees.
6. How does a client company know what amounts to include in computing COGS or compensation?
A staff leasing services company is required to provide a report to the client company containing the information for assigned employees that a client company will need to calculate compensation and COGS on the client company's franchise tax report. TTC 171.2125.
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