Sales Tax State Activity Update - September 2005

Employment Services Taxable in Ohio

The taxpayer specifies that the commissioner erred in assessing use tax on the purchase of employment services because they qualified for the exemption outlined under R.C. 5739.01(JJ) (3).

In order to qualify for the exemption two conditions must be proven by the taxpayer. First, there must be a contract of at least one year between the service provider and the purchaser. Second, the contract specifies that each employee covered under the contract is assigned to the purchaser on a permanent basis. In this case, there was no written contract but there was an oral contract. The taxpayer failed to collaborate to the satisfaction of the court that both tests were met.

Background
The taxpayer asserts that it had an oral, one-year contract with the supplier and testified to the latter. The arrangement was to be ongoing for one year to see if it worked out and as long as it did it would continue. Ultimately, the relationship lasted three years. The taxpayer eventually hired some of supplier's employees but was prohibited from doing so for the first sixty to ninety days of the engagement.

Ruling
The Board of Tax appeals agreed with the Tax Commissioner that the taxpayer failed to prove it met both tests outlined in R.C. 5739.01(JJ) (3). The taxpayer testified the relationship with the supplier was ongoing and the BTA interpreted the relationship could be discontinued at anytime by either party. The BTA also concluded no permanent assignment of an employee was present because the taxpayer failed to prove an employee contract existed with no ending date and the supplier employees were not mere substitutes for the taxpayer's own employees.

View the full notice here.

(The Premium Glass Co., Inc.v. Zaino, Ohio Board of Tax Appeals, No. 2003-T-1475, 8/5/05)

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