Jul 25, 2016
From KPMG TaxWatch
The Ohio Board of Tax Appeals recently addressed whether a business was providing a taxable employment service. Under Ohio law, sales and use tax is imposed on the provision of “employment services.” To be taxable, an employment service must meet three separate requirements: (1) the provider must 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. The business at issue, an Ohio pet food manufacturer, contracted for the provision of lower-skilled workers to assist at its production facility. The Ohio Department of Taxation considered the contract to be for “employment services,” and assessed the personnel supplier sales tax and the pet food manufacturer use tax on the transactions.
On appeal to the Ohio Board of Tax Appeals, both the manufacturer and the personnel supplier contended that there was no provision of “employment services” because the workers in question were supervised by the personnel supplier, not the manufacturer. The Board agreed. Reviewing the contract between the parties, as well as the testimony before the Board, it was clear that the personnel supplier was responsible for managing and supervising its workers. Specifically, it was responsible for managing the workers’ performance, creating work schedules, providing uniforms and safety equipment, coaching and counseling, processing payroll, and enforcing workplace rules. The Board rejected the Commissioner’s argument that because the manufacturer controlled the entire manufacturing process, it necessarily controlled the supplied staff. In the Board’s view, control over the manufacturing process did not equate to control over the workers themselves. Neither did the Board agree with the Commissioner that to establish that the workers were under the control of the personnel supplier, it must be demonstrated that the orders provided to the workers did not ultimately originate from the manufacturer. The Board concluded that the manufacturer, although controlling its overall manufacturing process, had ceded authority to the personnel supplier to supervise and control its workers. In the Board’s opinion, the contract between the parties clearly established an “on-site management model” for staffing which stood in stark contrast to a “traditional” employment service agreement where the workers would have been reporting to, and supervised by, the manufacturer. For more information on Seaton Corp et. al. v Testa, you may reach out to 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.