United States

Ohio: Exemption Denied for Cleaning Services Not Incorporated into Structure or Improvement

Mar 02, 2015
From KPMG TaxWatch

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The Ohio Board of Tax Appeals recently addressed whether cleaning services purchased by a contractor for use in a project for the Ohio National Guard were exempt from sales and use taxes. Under Ohio law, sales tax is imposed on building maintenance and janitorial services. If sales tax is not paid to the service provider, the purchaser is obligated to collect and remit use tax on its purchase. However, sales or use tax does not apply to building and construction materials and services sold to construction contractors that are incorporated into a structure or improvement to real property under a construction contract with the state or any of its agencies. The taxpayer purchased the cleaning services as part of a construction project for the Ohio National Guard and argued that they were exempt because the cleaning services were incorporated into the real property being constructed. After the Tax Commissioner issued a final determination, the taxpayer appealed to the Ohio Board of Tax Appeals.

In upholding the use tax assessment, the Board focused solely on whether the services were incorporated into the structure or improvement being constructed. In previous decisions, the Board required that items be physically affixed to the completed improvement to be “incorporated” under the exemption. The taxpayer argued that because additional work was performed on the construction project after the cleaning services were performed, the services were permanently incorporated into the realty. The Board determined that there was nothing in the record to support the taxpayer’s contention and thus concluded that the cleaning services were not incorporated into any structure or improvements. Accordingly, the Board upheld the Tax Commissioner’s use tax assessment. For more information on Dunlop & Johnston, Inc., et al. v. Testa, Ohio BTA (Case No. 2014-1513, Feb. 19, 2015), please contact Dave Perry at (513) 763-2402.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.