Be Careful Before You Stop Paying Sales Tax on Temps

A fair number of staffing suppliers desperate for you business are trying hard to promote "Sales Tax Exempt" temps to perspective clients. DON'T GET SUCKED IN! To do so opens yourself to hefty back tax liabilities, penalties and interest.

Background: Employment services became a transaction subject to Ohio Sales and Use Tax on January 1, 1993 (section 5739.01 (B) (3) (k) O.R.C.)

The Bellemar parts ruling by the Ohio Supreme Court made it clear that the "resale" or "manufacturing" exemptions are not valid as they apply to the use of staffing services.

The law includes five exclusions from the definition of the Employment Service.

The one exception that these questionable staffing suppliers massage to gain the business of rate conscience prospects says:

"Supplying personnel to a purchaser pursuant to a contract of at least one year between the service provider and the purchaser that specifies that each employee covered under the contract is assigned to the purchaser on a permanent basis".

This exception was added to the law effective July 1, 1993. Its purpose was to exempt from Sales Tax those utilizing the services of a "PEO to "Lease" employees performing work at their facility.

Stretching the "Leasing" exemption to fit the ordinary supplying of temporary help has specifically been shot down by the Ohio Department of Taxation and the Courts.

To be considered valid for the purpose of being exempt from Sales Tax the supplier/client agreement must include the following elements:
1. There must be a contract to supply personnel of at least one year in length.

2. Personnel must be assigned to the client on a permanent basis (i.e. personnel are provide for and indefinite period of time and are not provide as temporary replacements for other workers or to meet temporary changes in the customers business.)

Keep in mind also that the language of a contract can be superseded by reality. . . just because you say you're doing it doesn't mean you're really doing it. Also, while the use of "Employee Leasing" contracts can eliminate the Sales Tax, they shift many of the "employee-employer" legal burdens back to you and away from the staffing supplier.

The issue is definitely not an easy one. For more information and specific examples click on 2007 Information Release which will provide case studies of the Employment Service Sales Tax Issue.