Please Note: You are viewing the non-styled version of SITE NAME. Either your browser does not support Cascading Style Sheets (CSS) or it is disabled. We suggest upgrading your browser to the latest version of your favorite Internet browser.
On January 1, 1993, employment placement service was included within the meaning of "sale" and "selling" [Section 5739.01(B)(3)(e), Ohio Revised Code] and became a transaction upon which Ohio sales tax is to be charged. "Employment placement service" is defined in Section 5739.01 (KK) O.R.C. as "locating or finding employment for a person or finding or locating an employee to fill an available position." To help you understand what the change in the law may mean to you, the Department of Taxation has prepared this notification. If after carefully reading it, you have any tax questions or require more specific assistance on your responsibilities as a vendor, please contact us in person or by phone. The address and telephone number of each Department office are listed at the close.
The nature of the service covered by these sections and the "price" upon which tax is calculated can be readily understood. Employment placement service is a narrowly defined term and the tax on it applies to the fees, commissions, or other charges that a person pays for securing employment; that an employer pays for finding a person for a position; or that a person or company pays for finding or locating a position for a person. However, what does require some consideration is whether the transaction is an Ohio sale or not. Following a number of typical questions and answers on licensing and tax collection procedural matters are several application examples for your information.
1) If I provide an employment placement service, must I have a license and if so what type of license is required? How do I get one?
Yes. A person who meets the definition of an employment service provider must be licensed as a service vendor.
An Ohio service provider may obtain a service vendor's license from any office of the Ohio Department of Taxation. (This license is not available at the county auditor's office.) There is a $25 application fee. It is renewed annually for $10.
2) If my business is headquartered in another state but I provide employment placement service at locations in Ohio, must I collect Ohio tax?
Yes. You must register as an out-of-state seller, and collect and remit use tax on this service if the service is provided in Ohio. To register, contact any office of the Ohio Department of Taxation.
3) Is my need to register based upon the total amount of sales which I make?
No. This service is taxable regardless of the amount of business conducted.
4) If I provided such service or was paid for it prior to January 1, 1993, must I charge tax on it?
No. If any service was paid for or rendered prior to January 1, 1993, it is not subject to tax.
However, if performance of the service and payment took place on or after January 1, 1993, it is taxable. You should separate the nontaxable portion on charges that cover performance of this service before that date to avoid having to collect tax on the entire amount.
5) When is the tax on employment placement service to be reported?
The tax on the service is to be reported on the return covering the period when the sale is made, and a sale is made when performance of the service is provided or when the price is paid, whichever is first. If acceptance of an individual and payment of the fee is contingent upon the results of a trial period evaluation, the tax on the service is not due until the individual is accepted. If the fee is due upon acceptance without such contingency, but may be fully refunded within a specified time after placement, the tax is due when the individual is placed or the fee is paid, whichever is first.
6) What price should I use in calculating the amount of tax to be charged?
The total amount billed to the client for the employment service is the "price," even though you may choose to separate certain reimbursable costs, such as the itemization of travel expenses.
7) What rate of tax should be charged?
The rate of taxation for a service depends upon the county where the client receives the benefit of your service; that is, where the employee is assigned for an employer-client or where the employee resides for an employee-client. In addition to the state tax rate of 5%, county rates currently ranging from 1/2% to 2% may also apply.
If you provide a placement to an employer-client for locations in more than one county, you will need to separate the placement charges for each county and bill tax based on the appropriate rate for each county involved.
You will be furnished a listing of counties and their rates, and will automatically be notified when any rate change occurs.
8) How will I report the tax collected on this service?
Service vendors file a sales tax return (Form ST-10) each month and a supplemental sheet (Form ST 10-T) on which you designate a county-by-county breakdown of your taxable sales and tax. Out-of-state sellers will file similar returns. Tax returns will be mailed to you shortly after you apply for your license. All returns must be filed, even if no sales are made in the period to be reported.
You are entitled to a 3/4 of 1% (.0075) discount on the tax to be paid, if tax returns are timely filed with full payment of the amount due.
Vendors who fail to file returns on time or who do not remit the amount due with filed returns are subject to a late filing charge of $50 or 10% of the tax due, whichever is greater. If assessed, there is a 50% penalty on any tax collected that was not paid. Failing to remit sales tax collected is a fourth degree felony.
9) Am I entitled to claim exemption on the purchase of any other service which is considered "sale and selling" under the Ohio Revised Code?
If you purchase another "employment placement service" for the purpose of reselling that service to a client, you may claim "resale" from that service supplier. However, you must properly charge tax on the total price of all of the employment placement service provided.
Example: Company A, an employment placement service provider, has a client looking for an engineer. Company B, also in the hat business, has a qualified candidate. They agree to split the fee if B's candidate is hired. Company A may claim exemption from tax on its transaction with Company B based on its resale of B's service. However, Company A must collect tax on the entire charge for the placement.
10) If an employment placement service is to be provided for a client that claims to be nontaxable, what proof does the law require?
If the client is never subject to tax (such as the U.S. government; the state of Ohio; or a city, county or other political subdivision of this state), a copy of the sales invoice is all that is needed, provided that the name and address of the client are clearly identified.
If the client is claiming that the use of the service is not subject to tax or that it is a nonprofit charitable organization, a qualifying state veterans' organization headquarters, or an organization described in section 5709.72 of the Revised Code, obtain a valid exemption certificate from the client and keep it in your files.If the client claims to hold a direct payment authority with Ohio, the client is to furnish evidence of the authority. (A direct payment authority is always 98-six digits.)
Note: An employee-client is not entitled to claim exemption based on the exempt nature of the organization for whom he or she has been placed.
11) What are my responsibilities if the consumer refuses to pay tax?
As a provider of a taxable service, you are responsible for charging, collecting and remitting tax. If the purchaser of your service has no valid reason for not paying tax, you may pursue collection as you would any unpaid debt. The Ohio Revised Code in sections 5739.26 and 5741.19 reads, " No consumer shall refuse to pay the full and exact tax as required by ...[statute], or refuse to comply with such sections and the rules and regulations of the tax commissioner, or present to the vendor a false certificate indicating that the sale is not subject to tax." A rule of the Tax Commissioner (Rule 5703-9-03 of the Ohio Administrative Code) requires that exemption certificates be accepted in good faith.
Examples of Employment Placement Transactions and their Tax Treatment:
FEE PAID BY THE EMPLOYEE:
| EXAMPLE #1 | Ohio or Out-of-State Employer |
The fee paid by the employee is taxable at the rate in effect in the county where the employee lives when the job is found because the benefit of the service is received there.
| EXAMPLE #2 | Ohio or Out-of-State Employer |
The fee paid by the employee is not taxable because the out-of-state resident is considered to have received the benefit of the employment service in the other state.
| EXAMPLE #3 | Ohio or Out-of-State Employer |
As with the analysis of Example 1, the fee paid by the employee is taxable at the rate in effect in the county where the employee lives when the job is found because the benefit of the service is received there.
FEE PAID BY EMPLOYER:
| EXAMPLE #4 | Ohio or Out-of-State Employer |
This transaction is taxable at the rate in effect in the county where the employee's post of duty is or is to be.
| EXAMPLE #5 | Ohio or Out-of-State Employer |
The analysis is the same as Example #4
| EXAMPLE #6 | Ohio or Out-of-State Employer |
The fee paid for this job placement is not taxable because the benefit of the service received by the employer is not in Ohio.If the employer pays the employment placement provider an annual retainer, that retainer is subject to tax since the payment of the retainer anticipates the rendering of a taxable service. If in-state and out-of-state placements occur, that portion of the retainer which applies to Ohio placements is taxable and can be calculated based upon the ratio of other fees generated by the service provider for Ohio placement to all placement fees generated by the service provider. If the other fees are not related to the salary/wage of the positions filled, the allocation can be based upon the number of Ohio placements to all placements.
If you have any questions regarding this matter, you should direct your questions to one of our district offices or call 1-888-405-4039.
OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750
