Employment Services and Exemptions in Castle Case
On March 9, 2015, the Ohio Board of Tax Appeals issued a decision in A.M. Castle v. Joseph W. Testa, Tax Commissioner, No. 2013-5851. At issue in the case was whether A.M. Castle's purchase of employment services—specifically truck drivers—from D.C. Transportation was subject to Ohio sales/use tax. Employment services are generally subject to sales/use tax in Ohio, but an exemption exists under Ohio Rev. Code section 5739.01(JJ)(3) for services provided pursuant to a contract that (i) is effective for a period of at least one year and (ii) assigns employees on a permanent basis. The Ohio Department of Taxation conducted a sales and use tax audit of A.M. Castle and issued a use tax assessment. The Department agreed that the contract between A.M. Castle and D.C. Transportation was for a period of at least one year but asserted that the drivers were not assigned on a permanent basis, so the second prong in section 5739.01(JJ)(3) was not met.
A.M. Castle filed a protest with the Department, but after conducting a hearing, the Department upheld the assessment. The taxpayer then appealed to the Ohio Board of Tax Appeals. After an evidentiary hearing at which A.M. Castle presented testimony from principals at both A.M. Castle and D.C. Transportation, the Board decided the case in favor of A.M. Castle, concluding that the drivers were in fact assigned on a permanent basis. The Board noted that, although the contract did not use the phrase "permanently assigned" or similar magic language, the terms of the contract and circumstances surrounding it proved that the drivers were indeed permanently assigned. The Board specifically referenced the fact that the contract did not specify any end date and that the drivers were not provided to meet seasonal needs or as temporary substitutes for other drivers. The Board further noted that the drivers assigned to A.M. Castle (many of whom had worked on the A.M. Castle account for many years) remained in service under the contract unless A.M. Castle specifically requested in writing that they be removed—a request that was never made during the audit period. Accordingly, the Board reversed the assessment.
In Ohio, Board of Tax Appeals decisions are appealable as a matter of right to the Ohio Supreme Court. The Department has appealed, and that appeal is pending.
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