Five Ohio Chamber member companies gave strong proponent testimony last week in support of House Bill 343, legislation that would repeal the sales tax on the purchase of employment services. Their testimony underscored that Ohio’s employment services tax impedes job creation and business investment by imposing sales tax not just on the fee of the employment service provider, but also on the wages of the person hired. The absurdity of this tax is further reflected by the fact that it even applies to the employer’s matching payments for FICA and Social Security.
The testimony on HB 343 to the members of the House Economic and Workforce Development Committee covered the issues involved from all sides. Ted Bernert of the law firm Baker Hostetler gave the legal side, saying that since the tax is imposed on both wages and withholding taxes, the amount of sales tax can be devastatingly large for a taxpayer. He also noted the tax is being assessed by the Department of Taxation in situations involving otherwise exempt purchases of business services.
Two large Ohio employers, Cargill and Whirlpool, highlighted the reasons for their support of HB 343. Don Brown of Cargill said repeal of the tax would improve its ability to compete with other businesses because these services are not taxable in most other states in which it operates. Luke Harms of Whirlpool criticized the tax for several reasons, including the fact that it imposes sales tax on a single business input – labor. This makes Ohio manufactured goods less competitive because other states either do not tax labor or they exempt it as part of the state’s sales tax manufacturing exemption.
Finally, the committee also heard from two employment service providers, Larry Kidd of Reliable Staffing Services and Tia Ramlow of Great Work Employment. Mr. Kidd cited an American Staffing Association study that for every one percent in employment services sales tax, there is a corresponding 0.8 percent decrease in temporary jobs. Ms. Ramlow emphasized that the sales tax on employment services amounts to another tax of six to eight percent on the wages of a significant segment of Ohio’s workforce – temporary workers – which is detrimental to job and wage growth in Ohio.