Effective Oct. 1, 2021, Ohio will stop imposing sales and use tax on employment and employee placement services. Our state and local tax experts discuss what this means for you.
History of the taxability of employment services
“Employment services” were defined as transactions in which a service provider furnishes personnel on a temporary or long-term basis to perform work under the supervision of the purchaser. The determination of whether a company was providing or receiving “employment services” has been a hotly contested issue during audits and in litigation for years. Sales and use tax on these services has historically hit hard industries that rely on temporary employment, including manufacturing and information technology.
Ohio law defined “employee placement services” as the service of finding employment for a person or finding a prospective employee to fill an open position. The taxability of employee placement services imposed sales or use tax on outside recruiting services.
Companies that have historically paid sales tax to their vendors on these transactions should review their purchases after Oct. 1, 2021, to ensure sales tax is no longer being charged. If the services were performed prior to Oct. 1, 2021, but not billed until after Oct. 1, 2021, it’s proper for the vendor to charge sales tax on the transaction. Companies that review purchases and manually file use tax returns should ensure that use tax is no longer being accrued on these services starting on Oct. 1, 2021. Lastly, companies that have automated accruals for certain vendors or accounts should analyze their transactions to determine if processes should be changed going forward.
There were other significant tax changes resulting from Ohio’s budget bill as we previously summarized.
Questions about how this law change or other Ohio tax changes affect your business? Please feel free to contact us.