This section discusses the aspects of the law that apply to services excluded from employment.
| [ Tax Law Manual - TOC ] [ Ch 1 - Employing Unit ] [ Ch 2 - Employment ] [ Ch 3 - Employer ] [ Ch 4 - Taxes ] [ Ch 5 - Reports & Records ] | |
| [ 2.1 - Services Included in Employment ] [ 2.2 - Services Excluded from Employment ] [ 2.3 - Included and Excluded Service ] [ 2.4 - Landman, Service by ] [ 2.5 - Indian Tribal Councils ] [ 2.6 - Special Type Cases ] [ Ch 2 - Index ] | |
Chapter 2: Employment |
comments to: Tax Department |
This section discusses the aspects of the law that apply to services excluded from employment.
Under Section 201.061:
In this subtitle, "employment" does not include service for which unemployment compensation is payable under an unemployment compensation system established by an Act of Congress.
Comment: Section 201.061 of the Act excludes from the definition of employment service performed by an individual who is covered under an unemployment compensation system established by an act of Congress. The only known example of such an act of Congress is the Railroad Retirement Act. If the Railroad Retirement Board rules that an employing unit is subject to the provisions of the Railroad Retirement Act, the Commission honors that decision and takes the position that the employees of that employing unit are not in employment. If an employing unit states that it is covered under the Railroad Retirement Act, an Accounts Examiner can verify the information by calling the Railroad Retirement Board, toll free 1-800-808-0772, Houston Office (713) 209-3045, Ft. Worth Office (817) 978-2638 or by looking on the world wide web at www.rrb.gov.
Under Section 201.062:
In this subtitle, "employment" does not include service under an arrangement that is between the commission and the agency that administers another state's or a federal unemployment compensation law and that considers the service for an employing unit during the period covered by the employing unit's approved election to be performed entirely within the agency's state or under the federal law.
Comment: Section 201.062 applies to individuals who are working in Texas and administering the unemployment compensation laws of other state and federal agencies. While the services of these workers may constitute employment in the "home" states, it is not covered employment for Texas purposes.
Effective January 1, 1978, the following services were exempted from coverage.
Subsection 201.063(a) states:
In this subtitle, "employment" does not include:
Comment: This section exempts from the definition of employment and coverage under the Texas Unemployment Compensation Act services performed as an elected official.
This section of the law exempts those who hold an office, which is normally filled as the result of a vote or plebiscite. It does not exclude the deputies of an elected official because they are not elected officials, but are hired or appointed by the elected official to assist in his/her work or to act on his/her behalf. This exemption speaks of the office rather than the individual occupying it. Accordingly, one who is appointed on an interim basis to fill an elective office would also be exempt under this subsection.
Subsection 201.063(a) states:
In this subtitle, "employment" does not include:
Comment: This subsection exempts services performed by a member of a state legislature or a city council or some other body which has the power to make, promulgate, or pass legislation. This particular exemption, although permitted by federal law, is to some extent redundant because in the state of Texas, all members of legislative bodies are also elected officials.
Subsection 201.063(a) states:
In this subtitle, "employment" does not include:
Comment: This subsection exempts services performed as a member of the judiciary.
This subsection exempts services performed as a justice of the Texas Supreme Court, a justice of the Court of Criminal Appeals, a justice of the Court of Civil Appeals, a judge of a District or County Court, a Justice of the Peace or a judge of a Municipal or Corporation Court. It would also exempt from coverage judges of special district courts such as domestic relations courts or criminal district courts. In addition, it would exempt from coverage services performed as the judge of a county court at law or county criminal court. It would not exempt the clerks or bailiffs of such courts, however.
Subsection 201.063(a) states:
In this subtitle, "employment" does not include:
Comment: This subsection exempts services performed as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood or similar emergency. Employees who serve temporarily as a result of the various natural disasters are exempted. The term "similar emergency" does not include heavy loads of routine work such as a "blizzard of paperwork."
Subsection 201.063(a) states:
In this subtitle, "employment" does not include:
Comment: This subsection exempts services performed in a position which is designated as a major, nontenured policy-making or advisory position, the performance of the duties of which ordinarily does not require more than eight (8) hours per week.
A nontenured position is one which is not covered by merit system or civil service laws or rules with respect to the duration of service or the length of the appointment.
The word "major" in the phrase "major nontenured policy-making or advisory position" refers to high level government positions which are filled by appointment by either the chief executive of a political entity, such as a governor, a mayor, a city council, or a county commissioner's court. A major position would be one which involved responsibilities affecting the entire political entity. The term "policy-making" refers to determining the direction, emphasis, and scope of action in developing and administrating governmental programs.
In instances in which the law or ordinance does not specifically categorize or label a position as a major, nontenured, policy making or advisory position, other pertinent factors may be considered. Such factors as job descriptions, the qualifications of the individuals considered for or appointed to the position, and the responsibilities involved should be taken into account in determining the character of the position for the purpose of applying the exemption.
The term "advisory" refers to a position in which one advises an established government agency officer with respect to policy, programs, and administration without having the authority to implement the recommendation.
Under 201.063(a) states:
In this subtitle, "employment" does not include:
For specific details regarding this exclusion, refer to Section 201.063. Any inquiry concerning employment status of this nature should be directed to the State Office Status Section for a determination.
Section 201.063(a) states:
In this subtitle, "employment" does not include:
Comment: Under Section 201.063(a)(4), service performed in the employ of the United States Government is excluded from the definition of employment.
Texas has no authority to levy unemployment compensation taxes against an instrumentality of the United States without specific statutory permission by the Congress of the United States.
Although National Banks are federal instrumentalities, they are not wholly owned by the United States nor are there any provisions of law exempting service for such banks. Services for Production Credit Associations are also included.
Although officer's dining facilities and military exchanges, as they are ordinarily operated at military and naval bases, are instrumentalities of the federal government, no exclusion is applicable to concerns or business establishments which are privately operated on military bases. Such exclusion does not apply to establishments directly under the control and direction of the Armed Forces and to those owned either by branches of the Federal Government or by the various officers in the Armed Forces who are stationed at a particular military or naval base and who own membership in the Club or Officer's Mess. Should a representative encounter any type of establishment or employing unit at a military or naval base that is different from Officer's Messes as they are ordinarily operated, a statement as to the manner of operation should be submitted to the State Office Status Section for an opinion.
In this subtitle, 'employment' does not include
domestic service in a private home, local college
club, or local chapter of a college fraternity
or sorority, except as performed for an employer
under Section 201.027.
Domestic employment is defined as:
Work performed in a private home by a baby sitter,
butler, caretaker, chauffeur, companion, cook,
footman, furnaceman, gardener, governess, groom,
handyman, housekeeper, houseman, janitor, laundress,
maid, nursemaid, seamstress, sitter, waiter, watchman,
or valet.
COMMENT: The term 'private home' as used in Section
201.064 is defined as the place of abode of an
individual or family. If the home is utilized primarily
for the purpose of supplying board and/or lodging
to the public as a business enterprise, such as
a bed and breakfast operation, it ceases to be
a private home.
Such services as those described above, although
excluded from regular employment, are included
in domestic employment as described in Section
201.027.
Concerning Nurses in private household:
Nurses working in a private home under the direction
and control of the homeowner would be considered "domestic
employment." However, a nurse taking care
of a resident in a nursing home would not be considered
domestic employment.
| [ 2.2.5.1 - Father or Mother, Service by ] [ 2.2.5.2 - Spouse, Service by ] [ 2.2.5.3 - Son or Daughter, Service by ] |
Under Section 201.065:
In this subtitle, "employment" does not include:
Under Section 201.065, service performed by an individual for his or her son or daughter is excluded from the definition of employment. This exclusion exempts services performed by the father or mother of an individual employing unit. The exclusion is likewise applicable to services performed by a parent for a partnership if all of the partners are the children of the parent who performs the service.
This exclusion from the definition of employment has been extended to cover service performed by a stepparent for a stepchild or stepchildren. It is a common practice to consider the relationship between a stepparent and a stepchild as though there were a blood relationship.
The exclusion from employment has also been extended to cover service performed by a foster parent for a foster child. The foster parent stands in "loco parentis" to the natural parent, i.e., in place of the natural parent. Both the foster parent and the foster child have the same (or some) of the rights that would exist if the relationship was natural, regardless of whether or not there have been legal adoption proceedings.
This exclusion from the definition of employment has likewise been extended to service performed by a father-in-law or mother-in-law of the individual employing unit or to a partnership composed of two or more individuals who are sons-in-law or daughters-in-law of the person performing the service. This is due to the provisions of the community property laws of Texas. For example, the father-in-law who performs service for his son-in-law is in reality performing part of his service for his daughter who owns an interest in the community property and business of her husband.
Ordinarily this exclusion applies only to an individual employing unit. However, service performed for a partnership is excluded if an exclusion applies to all of the partners. For example, service performed by a woman for a partnership composed of her husband and her son.
Services by a son or daughter under the age of 21 years are excluded from employment. This exclusion generally extends only to an individual employing unit. In some circumstances, however, it is possible under the Texas law for a husband and wife to create a valid partnership. In such a situation, service performed for the two-member partnership by a son or daughter under the age of 21 years is exempt.
The exemption has not been extended to service performed by a minor child for his or her father-in-law or mother-in-law for the reason that there is no provision in the community property laws which would justify such an interpretation.
| [ 2.2.6.1 - Payments Made To A Partner ] |
| [ 2.2.7.1 - Churches & Religious Organizations ] [ 2.2.7.2 - Ministers ] |
This section discusses the aspects of the law that apply to religious service.
In this subtitle, "employment" does not include:
Comment: Section 201.066 of the Act contains two separate and distinct provisions. Service performed in the employ of a church, convention, or association of churches is excluded from the definition of employment. This is true even though the activity may ordinarily be considered a commercial activity, such as the operation of a used clothing store. If, however, the activity is being performed by a separate legal entity, that is supported or sponsored by a church, this separate organization must stand on its own regarding the status of its workers.
Church: There is no definition of a church in the TUC Act. It is the position of the Commission that the word does not pertain to a church building, but rather to the membership which collectively constitutes a church. Black's Law Dictionary, in quoting from various court decisions, defines a church as "a body of communicants gathered into church order", "body or community of Christians, united under one form of government by the profession of the same faith, and the observation of the same ritual and ceremonies", either of which we consider to be a valid definition of a church.
Convention or Association of Churches: This phrase refers to an organization in which more than one church are members.
Religious Organizations: The second part of Section 201.066 excludes from the definition of employment
Operated Primarily for Religious Purposes: A religious purpose is considered to be an activity required by a religion that refers to man's relationship to a Divinity. A religious purpose should be distinguished from a charitable or moral purpose.
In order for the service performed for an organization other than a church, convention or association of churches to be exempt, the organization must be operated primarily for religious purposes and, in addition, the organization must be operated, supervised, controlled, or principally supported by a church, convention or association of churches. This criteria is not met simply by the presence of the word Methodist, Baptist, Catholic, etc., in the name of the organization.
This exclusion from employment is applicable to service for a theological seminary whose curriculum is composed primarily of religious subjects or courses and is owned or operated by a convention or association of churches. The exclusion is not applicable to a college which offers degrees in fields other than religion and is only partially supported by a church, convention or association of churches.
The Salvation Army is considered to be a church.
In a Status investigation involving Section 201.066, it is often helpful to obtain answers to the following questions:
An affirmative answer to Question 1 entitles the organization to exemption. Questions 2 - 6 are then unimportant and need not be investigated.
If the answer to Question 1 is "No," Question 2 must be answered. If the answer to Question 2 is "No," the organization is not exempt. If the answer to Question 2 is "Yes," Question 3 - 6 must be answered. A "Yes" answer to Question 2 plus a "Yes" answer to either Question 3, Question 4, Question 5 or Question 6 entitles the organization to exemption.
Section 201.066:
In this subtitle, "employment" does not include
Comment: Service of a licensed or ordained minister as a salaried chaplain on a hospital payroll who performs religious functions is exempt. It is not necessary for a minister to exercise his religious duties as pastor of a church.
Under Section 201.067:
In this subtitle, "employment" does not include:
Comment: This exclusion from employment is not applicable to an employee of such an organization unless the employee is likewise receiving rehabilitative service.
Section 201.067:
"In this subtitle, "employment" does not include:
COMMENT: This exclusion from employment does not pertain to an instructor unless he or she is receiving work-relief or work training. The exclusion applies to someone who is both an employee of the organization and who is enrolled as a work-relief measure or as a work-training measure. The exclusion is aimed at the 'sheltered work shop' type of establishment, which pays the trainees for the work they do although this provision could have broader applications. A provision in the Revenue Act of 1971 offers an income tax credit to employers who employ individuals enrolled in the WIN Program. When the individual is hired by the employer, the worker no longer performs service under the Win Program but becomes an employee of the employer to the same extent as any other regular employee. The services, therefore, constitute employment and the wages paid by the employer are taxable. For Job Training Partnership Act (J.T.P.A.) details, see Tax Supplement 3-85.
201.068 states:
"In this subtitle, "employment" does not include:
Comment: The services of a student nurse are excluded from employment under Section 201.068 if the nurse is employed by a hospital or a nurses' training school and is enrolled and regularly attending classes in a nurses' training school, chartered or approved pursuant to State law. The nurses' training school where the student nurse is employed need not be the same nurses' training school where the nurse is enrolled.
The service performed by an intern in the employ
of a hospital is excluded from the definition of
employment if the intern has completed a four-year
course in a medical school chartered or approved
pursuant to State law. Intern is an obsolete term
in the medical world according to the Accreditation
Council for Graduate Medical Education. No longer
used by the AMA or ACGME; replaced by "resident" or "resident
physician." Historically, "Intern" was
used to designate individuals in the first post-MD
year of hospital training; less commonly, it designated
individuals in the first year of any residency
program. After graduation from an accredited medical
school, a doctor usually continues in a training
program called residency. The residency can last
anywhere from three to eight years depending on
the individual's specialty. After completion of
the required internship, the doctor may continue
to work at the hospital as a salaried resident
physician. Services as a resident physician constitute
employment.
Effective January 1997, the Tax Department interprets
the term "intern" to mean service performed
during the first year of residency and thus exempt
under Section 201.068 of the TUCA. Wages paid to
physicians during subsequent years of training
will be taxable for TUCA purposes.
A medical fellowship is an award to a postgraduate student who may be doing research or engaged in a course of study, which requires the student to do some practice teaching. Fellowship grants received by a person who is not a candidate for a degree constitute gross income, but are neither wages subject to employment taxes nor self-employment income.
Section 201.068 states:
"In this subtitle, "employment" does not include
Subsection 201.069 states:
"In this subtitle, "employment" does not include:
Comment: A student is a "Work Study Student" if they are employed by an institution of higher education and are enrolled at and regularly attending classes at that institution.
Services performed by a student in a work study program are exempt.
"Regularly" has been interpreted as having at least 12 hours of academics, except for graduate students who should be carrying at least six (6) hours.
Section 201.069:
"In this subtitle, "employment" does not include:
Comment: These programs are commonly referred to as Distributive Education (DE) and Vocational Office Education (VOE) Programs. Services performed between academic years are not included in this exemption.
Section 201.069 states:
"In this subtitle, "employment" does not include
Comment: This subsection is effective August 31, 1987.
Exempt employment includes service performed by a full-time student in the employ of an organized camp for less than 13 weeks in a year if the camp did not operate more than seven months in the current or preceding year, or the camp had average gross receipts for any six months in the preceding year which were not more than 33 1/3 percent of its average gross for the other six months. An individual is a full-time student if enrolled for a minimum of twelve hours at an educational institution, or if the student is between academic years or terms, was enrolled at an educational institution for the immediately preceding term and there is reasonable assurance of enrollment the following year or term.
Section 201.070 states:
"In this subtitle, "employment" does not include:
Federal and state law provide that an individual working as a direct seller of consumer products shall not be treated as an employee, and the person for whom the services are performed shall not be treated as an employer if ALL of the conditions listed below are met.
Section 201.070 states:
"In this subtitle, "employment" does not include:
Comment: These services are excluded if the following conditions are met:
The individual may provide these services by in-person sales of consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis for resale in the home, or any place other than a permanent retail establishment or place affiliated with a permanent retail establishment.
Definition of "CONSUMER PRODUCTS" -- The term "consumer products" is not defined in the Act. However, the Commissioners may take official notice of the definition contained in the Texas Business and Commerce code which states in part, that goods are "consumer goods" if they are used or bought for use primarily for personal, family, or household purposes. Similarly, Black's Law Dictionary, 6th Edition (1990) defines a consumer product as "any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes including any such property intended to be attached to or installed in any real property without regard to whether it is attached or installed."
The requirement that the sale be in a home or in a place other than a permanent retail establishment has been interpreted by the Commission to mean that the exemption does not apply if any sales are made at a place which is or is affiliated with a permanent retail establishment. See generally the Commission's decision in American Remodeling, Inc., decided January 25, 1988. (Sales representatives engaged in the sale of aluminum siding are not exempt from the definition of employment under Section 201.070(2) of the Act because of an affiliation with Sears, a permanent retail establishment.)
In order for the exemption to apply, the sales representatives must be paid based upon their sales or other output rather than upon the number of hours worked. Sales representatives who are paid by the hour are not exempt. The Act requires that the services must be performed pursuant to a written contract between the individual and the person for whom the services are performed and that the contract must contain an express provision stating that the individual is not treated as an employee with respect to those services for Federal Tax purposes. Such an agreement must be in writing.
In Mr. Happiness Corporation, decided February 13, 1990, the Commission held that Section 201.070(2) did not apply because there was no written agreement between the workers and the corporation which contained the express statement that the individual is not treated as an employee with respect to those services for Federal Tax purposes. In short, if there is no written agreement, or if there is a written agreement but it does not contain the necessary statement -- that the worker is not treated as an employee with respect to those services for Federal Tax purposes -- the exemption for direct sales of consumer products in a home contained in Section 201.070(2) does not apply.
Section 201.070(3) states:
"In this subtitle, "employment" does not include:
Comment: This section exempts services performed by individuals for a wholesaler or sales representative of a wholesaler or manufacturer of consumer products or services performed by a salesman for a wholesaler of consumer products if the wholesaler maintains a regular or seasonal place of business at a trade market in a city with a population of 750,000 or more.
There is nothing in the language of this section which limits the trade market facility to a Texas city. Rather, any trade market facility in any city of the requisite size or larger will trigger the application of this exemption, if the other criteria are met. For example, a trade market facility in Chicago, New York City, or even Hong Kong will trigger the exemption.
There are four separate provisions in the Texas Unemployment Compensation Act which are or may be applicable in determining the status of sales persons. They are:
If the sales persons or those working on a commission basis are not covered by one of the provisions listed above, the employment status is determined by the general definitions of employment in Section 201.041 which references three specific requirements:
The last requirement incorporates the common law factors of direction and control. The determination can be simplified by asking who the seller is, what is sold, where the sale takes place, and to whom the sale is made.
Section 201.071 states:
"In this subtitle, "employment" does not include service as an insurance agent for which the only remuneration for the service is a commission."
Comment: An insurance agent or an insurance solicitor is not in employment under Section 201.071 if all services are performed for remuneration solely on a commission basis. The exclusion does not apply if the agent or solicitor receives a fixed compensation and commission. A guaranteed salary is indicative of covered employment. For the purposes of this subsection, advances against commissions are considered the same as commissions. Most all insurance agents and solicitors perform services under a written contract of hire. If the terms of the contract present any question regarding the basis of compensation, submit the contract submitted to the State Office Status Section for a ruling.
| [ 2.2.20.1 - Real Estate License Act ] [ 2.2.20.2 - Real Estate Broker and / or Salesman (Agent) ] [ 2.2.20.3 - Real Estate Instructor ] |
This section discusses the aspects of the law that apply to real estate professionals.
Definitions related to the Texas Real Estate License Act, appearing in Section 201.072:
"Real estate broker" means a person who, for another person and for a fee, commission, or other valuable consideration, or with the intention or in the expectation or on the promise of receiving or collecting a fee, commission, or other valuable consideration from another person:
"Broker" also includes a person employed by or on behalf of the owner or owners of lots or other parcels of real estate, at a salary, fee, commission, or any other valuable consideration, to sell the real estate or any part thereof, in lots or parcels of other disposition thereof. It also includes a person who engages in the business of charging an advance fee or contracting for collection of a fee in connection with a contract whereby he undertakes primarily to promote the sale of real estate either through its listing in a publication issued primarily for such purpose, or for referral of information concerning the real estate to brokers, or both.
"Real estate salesman" means a person associated with a Texas licensed real estate broker for the purposes of performing acts or transactions comprehended by the definition of "real estate broker" as defined in this Act.
Section 201.072:
"In this subtitle, "employment" does not include:
Comment: A person who appraises or offers or attempts or agrees to appraise real estate is within the definition of a "real estate broker." Real estate appraisers must be licensed under the Real Estate License Act. Real estate appraisal, along with all the other above-listed activities, is exempt from the term "employment" under Section 201.072(1), if all of the conditions of subsections A) to D) of that statute are also met.
Section 201.072:
"In this subtitle, "employment" does not include
Section 201.073:
"In this subtitle, "employment" does not include:
Comment: This section deals with service performed for compensation by an individual for a private for-profit delivery service. Services under Section 201.073 are excluded from the definition of employment if all of the conditions are met.
Section 201.073 states:
"In this subtitle, "employment" does not include:
Comments: Under Section 201.073(2), an exclusion applies when an individual under the age of eighteen (18) years delivers newspapers or shopping news to their ultimate point of reading consumption. The exclusion does not apply if there must be subsequent delivery or distribution in order for the material to reach the final point of distribution.
Section 201.074 states:
"In this subtitle, "employment" does not include service performed by an inmate of a custodial or penal institution."
Section 201.074 of the TUCA, was amended in 1999,
clarifying that the service provided by an inmate
of any prison, public or private, is ineligible for
unemployment insurance benefits, based upon service
provided while an inmate.
"Inmate" is defined as an individual actually
incarcerated in a prison. Once an individual has been
released on parole, probation or to a halfway house
they are no longer considered an inmate. An individual
is still considered an inmate even though they may
leave the prison during the day to perform services
elsewhere. The key factor is that they must return
to the prison facility at the end of each workday.
This definition is consistent with IRS interpretation.
Comment: Before it was amended in 1999, section 201.074
read as follows: "employment does not include
services performed by an inmate of a custodial or
penal institution that is owned or operated by the
state or a political subdivision of the state."
Subsection 201.075:
"In this subtitle, "employment" does not include service performed on a fishing vessel normally having a crew of fewer than 10 members if:
Comment: This subsection would appear to exempt services performed on commercial fishing vessels, such as shrimp boats, as the latter usually have a crew of only two to four individuals. However, the Federal Unemployment Tax Act also adds another requirement to the exemption, i.e., that the service must be performed aboard a vessel of less than ten (10) tons displacement. As many of the aforementioned vessels are larger than ten (10) tons displacement, services performed aboard them would be covered under the Federal Unemployment Tax Act and, by virtue of the wording of Section 201.075, they would also be covered under the Texas Unemployment Tax Act.
