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Ohio: Sales Tax on Employment Services

  • Oct 2, 2012 | Gail Cole

A recent case in Ohio reminds that a little cooperation can go a long way.

The Supreme Court of Ohio has issued a slip opinion stating that a construction contractor is liable to pay sales tax on certain employment services purchased between January 1, 2003 and December 31, 2005. 

Ohio has imposed a sales and use tax on "employment services" since January 1, 1993. In order to be exempt from this tax, a service must meet the following three requirements:

  1. "it must provide or supply personnel on a temporary or long-term basis,
  2. the personnel must perform work or labor under the supervision or control of another, and
  3. the personnel must receive their wages, salary, or other compensation from the provider of the service."

There is an additional exemption in Ohio for "permanent assignment" employees when

  1. "the assignment has no specified ending date and
  2. the employee is not being provided either as a substitute for a current employee who is on leave or to meet seasonal or short-term workload conditions."

Ultimately, what is important is not the language of a contract but rather "what the seller is providing and … what the purchaser is paying for in their agreement."

In Bay Mechanical & Electrical Corporation v. Testa, Bay Mechanical argued that it was not liable to pay sales tax on the purchased employment services because the personnel were treated as "permanent-assignment" employees.

However, in exemption cases, the "onus is on the taxpayer" to furnish evidence that "'clearly express[es] the exemption' in relation to the facts of the claim." In the case of Bay Mechanical & Electrical Corporation v. Testa, Bay "made a deliberate decision to refuse" to furnish the necessary documentation when the tax commissioner requested it. As a result, the tax commissioner denied the exemption and the BTA upheld that determination.

The  Supreme Court of Ohio ruled that "the BTA acted reasonably and lawfully when it upheld the tax commissioner's sales-tax assessment against Bay."

Had Bay provided the necessary documentation in a timely manner, the outcome may have been different.

All quotes in this post are taken from the slip opinion.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.