John R. Trippier, CPA – Director
Seaton Decision Adds Wrinkle to Ohio's Sales Tax On Employment Services
The Ohio Board of Tax Appeal’s decision in Seaton Corp. v. Testa, BTA Case No(s). 2015-224, 2015-743 (July 13, 2016), could have a significant impact on the sales and use taxability of employment services in Ohio. “Employment services” is one of the enumerated taxable services in Ohio and occurs when a business provides or supplies personnel to a customer, on a temporary or long-term basis, to perform work or labor under the supervision or control of another, when the personnel so provided or supplied receive their wages, salary, or other compensation from the provider or supplier of the employment service. The typical example is hiring a temporary administrative assistant to replace an administrative assistant that has gone on vacation. The entire charge for the temporary is subject to Ohio sales tax.
At issue in Seaton was the sale of services by Seaton to Kal Kan of “on-site management operations” where Seaton personnel operated Kal Kan’s production line. Specifically, Seaton personnel were provided for lower skilled positions, who primarily “handle manual tasks such as loading the tubs into the tub feeders and palletizing the product.” The BTA found that Kal Kan lacked the requisite supervision and control over Seaton’s personnel and that therefore, Seaton’s services did not meet the definition of employment services. As a result, Seaton’s services were not subject to Ohio sales or use tax. In reaching its decision, the BTA relied on numerous factors, including:
The intent of relationship was to enter a contract adopting an “on-site management model”;
Kal Kan only communicated the production goals for a particular period and it was the responsibility of Seaton to perform and staff these needs appropriately;
Seaton was required to “provide on-site supervision that is responsible for all shift management of the contractor employees”; and
The contract provided that Seaton would “furnish, manage and supervise” the personnel Seaton provided.
The case is currently on appeal to the Ohio Supreme Court. Also, significant legislative efforts are afoot to improve the employment service tax provisions.
If you would like to discuss the impact this case or the legislative effort may have on your business, please contact John Trippier, Tom Zaino, or any of the other professionals at Zaino Hall & Farrin LLC.