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SUMMARY:Possible Refund Opportunity for Tennessee Taxpayers\: Tennessee Court of Appeals Holds That In-House Software  Exemption Applies to Software Created by Contract Workers  from Staff Augmentation Service
DESCRIPTION:   A recent Tennessee Court of  Appeals decision may present an opportunity for sales and use tax refunds for  tax paid on software developed by contract workers from staff augmentation  companies.  Tennessee sales and use tax applies to the transfer\, installation\,  maintenance\, or repair of computer software.  However\, Tennessee also provides  an exemption from the tax for “in-house software\,” which allows a business to  develop software tax free for its own use.  The Tennessee Court of Appeals  recently held in TEKsystems\, Inc. v. Chumley that  the in-house software exemption applied to code created by “information  technology professionals” employed by a staff augmentation service\, but who  worked under the direct supervision and direction of the staff augmentation  service’s clients.  In the TEKsystems case\, TEKsystems\, Inc. (TEK)  engaged in business as a staff augmentation company furnishing temporary  information technology workers to supplement clients’ existing IT departments.  Although contracts between TEK and its clients provided that TEK was an  independent contractor\, the Court held that the in-house software exemption  applied to code created by TEK’s contract workers because TEK’s clients exerted  a sufficient degree of control over the workers so as to render them agents of  the clients and\, therefore\, the clients (via the contract workers) created the  code for their own use.  In support of its ruling that an agency relationship  existed\, the Court noted that TEK’s clients decided whether to hire each  contract worker\; approved contract workers’ timesheets\, vacation days\, sick  days\, and personal days\; assigned workspace\; managed contract workers’  assignments and deadlines\; and also required contract workers to comply with the  client’s firm policies and standards\, such as standards of conduct or dress  codes. \nThe TEKsystems ruling  presents potential refund opportunities for businesses that have created  software through the use of contract workers from staff augmentation companies\,  depending upon the nature of the relationship.  Companies that have  self-assessed use tax may file refund claims directly with the Tennessee  Department of Revenue.  In cases where businesses paid sales tax directly to  staff augmentation companies\, however\, those businesses will need to request  that the staff augmentation companies file claims for refund.  Pursuant to Tenn.  Code Ann. &sect\; 67-1-1801(a)\, claims for refund must generally be within three years from December 31 of the year in which the payment was  made.  Legislation is pending that will overturn this result for services  provided after July 1\, 2009\, but the legislation will not prevent existing  claims for prior periods.  For more information\, you may contact Charlie Trost [http\://e2ma.net/go/816297270/707904/25320087/goto\:http\:/www.wallerlaw.com/attorneys?categories=Tax&id=47090]\, Michael Yopp [http\://e2ma.net/go/816297270/707904/25320085/goto\:http\:/www.wallerlaw.com/attorneys?categories=Tax&id=47170]\, Brett Carter [http\://www.wallerlaw.com/attorneys/2007/06/11/carter-brett-r.4851] or Chris Wilson  [http\://www.wallerlaw.com/attorneys/2007/09/11/wilson-christopher-a.4664]at 800-487-6380.\nWE ARE  REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE PRECEDING DISCUSSION WAS NOT  INTENDED OR WRITTEN TO BE USED\, AND IT CANNOT BE USED\, NOR RELIED UPON\, BY ANY  TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER  FEDERAL TAX LAW.  THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING  OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION.  EACH TAXPAYER  SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX  ADVISOR. \nThe opinions  expressed in this bulletin are intended for general guidance only.  They are not  intended as recommendations for specific situations.  As always\, readers should  consult a qualified attorney for specific legal guidance.\n
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CATEGORIES:state-and-local-tax,tax
CLASS:PUBLIC
SEQUENCE:3
DTSTAMP:20120208T095024
CREATED;TZID=US-Central:20090616T152407
LAST-MODIFIED;TZID=US-Central:20090618T075837
DTSTART;VALUE=DATE:20090616
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