On July 1, 2021, Governor DeWine signed legislation that will repeal the state’s sales tax on employment services and employment placement services. The Ohio House and Senate voted to repeal the tax as part of Ohio’s Budget Bill, H.B. 110. The repeal provision goes into effect on October 1, 2021.
The Ohio Revised Code had defined “employment service” as “providing or supplying personnel, on a temporary or long-term basis to perform work or labor under the supervision or control of another, when the personnel so supplied receive their wages, salary, or other compensation from the provider of the service.” “Employment placement service” was defined as “locating or finding employment for a person or finding or locating an employee to fill an available position.”
The tax was enacted almost 30 years ago and has undergone a long history of disputes and litigation with the Ohio Department of Taxation. The tax is considered a heavy tax burden on Ohio business and employment because it is an additional transactional tax that is not placed on these types of services in most other states. The greatest impacted industries generally include manufacturing, distribution, and similar industries that commonly use the services of temporary employees and/or employment service agencies. According to the Ohio Legislative Service Commission, the repeal will reduce general fund revenues by $92.4 million in fiscal year 2022 and by $138.6 in fiscal year 2023.
Because the bill is not effective until October 1, 2021, taxpayers will have to continue to work with the Department of Taxation to review these transactions for taxability on audits for periods prior to October 1, 2021. This will include documenting any exclusions such as permanent placement, lack of control and supervision, affiliated group transactions, and others that may apply. Additionally, direct pay permit holders should review their reporting procedures after the effective date to ensure they are in compliance with this change.
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