The Ohio Supreme Court has held that services provided by a staffing agency (Seaton Corp) to a manufacturer were not taxable when the staffing agency provides on-site management. The controversy centered on whether Seaton Corp was providing “employment services” under 5739.01(B)(3)(k)—specifically whether the personnel were performing work under the “supervision or control” of the manufacturer. See Seaton Corp. v. Testa, 2018-Ohio-4812. In this context, the supervision and control must be “specific to the work or labor performed by the personnel provided – not an overall production process.” Seaton Corp. maintained control over training, scheduling, workplace assignments, and work tasks performed at the job site. Conversely, the manufacturer had no work related interaction with the Seaton Corp. workers.

The Tax Commissioner asserted that the manufacturer’s control over its own production process and manufacturing lines equated to supervision or control over the Seaton-supplied personnel who worked in those areas. However, the Court rejected this position based upon Seaton Corp.’s continued control over the workers at the manufacturing facility. Further, the applicable contracts specifically granted Seaton Corp. the exclusive right to control its employees and prohibited each party from directing each other’s employees.

This decision creates potential for refund claims where staffing agencies provide personnel with on-site managers who control the basic workforce functions and day-to-day tasks. These situations mostly likely occur when a company outsources an entire division or function to the third-party staffing agency, including the management of the division / function. Obviously, it is best if the contract and actual performance are consistent with this arrangement. Remember, even if the purchaser does supervise or control the workers, it may be able to claim the permanent assignment exception for leased employees, as explained here.