A key priority of the Ohio Chamber’s 2015-16 tax policy agenda moved forward last week with the introduction of House Bill 343. This legislation would repeal the sales tax on employment services. Since it became effective in January 1993, the employment services tax has impeded the growth of Ohio’s economy by raising the cost of creating jobs and thus should be repealed.

An employment service is generally defined under Ohio law as providing personnel, on a temporary or long-term basis, to perform work under the supervision or control of another business with the personnel receiving their wages from the service provider. However, the application of the tax has extended beyond the stereotypical situation where the service provider supplies personnel if an employee goes on vacation or terminates employment or the employer has an acute need for multiple workers on a short-term basis.

In fact, the tax is being applied in situations such as where an outside software, computer or information technology consultant is hired through an employment service provider and works at a manufacturer to fix a problem in the factory. Depending on which entity is supervising and controlling the “consultant/temporary employee”, the taxpayer company may see the transaction as a consulting service exempt from sales tax, whereas the Tax Department would see it as a taxable employment service. As a result, litigation often ensues.

Moreover, the employment services tax is applied not only on the fee charged by the employment service provider, but also on the wages earned by the so-called temporary employee. Ohio is one of only five other states that subject employment services to sales tax, but it is the only state that charges tax on the employee’s wages or compensation.

An old adage regarding tax policy is that the more you tax something, the less you get of it. The Ohio Chamber believes that charging an Ohio company an additional six to eight percent when it “hires” a temporary worker, consultant or independent contractor through an employment service provider has resulted in fewer jobs and less economic growth in Ohio. It is time to stop penalizing job creation and employment and to repeal the sales tax on employment services.