The burden to establish the proper B&O tax classification rests with the staffing business. Because the classification depends upon the services provided by the worker, the staffing company must obtain sufficient information from the customer to classify the income correctly.
Documenting the services provided
The staffing business must keep documentation to show what services their workers perform. All available information should be recorded concurrently with the assignment of the worker and the charge for the service. It is important that the customer's labor and skill requirements are detailed upfront as much as possible prior to dispatch. This is particularly important for purposes of billing retail sales tax.
Documentation may be in the form of a copy of a customer order or other documented request by a customer for a worker. The documentation must state the specific work to be performed, and/or the worker skills requested by the customer. If the customer's request comes in by telephone, the staffing business should ask exactly what type of services are required and write them down on an order form, or as a memo to the customer file. Also, the worker can provide a written explanation of the services actually performed.
Detailed description: Documentation to support the B&O tax classification must be sufficiently detailed to support the classification reported.
The classification of primary interest to the customer is Retailing. Only under Retailing is the seller of the service required to collect retail sales tax from the end user. Any other classification which does not directly impact the customer may be of less interest to the customer. Nevertheless, because the rates usually vary between classifications, it is in the staffing business' best interest to gather enough information to classify all services correctly.
Default to higher rate: When the nature of the activity performed by the worker is not documented in such a way to clearly establish the proper classification, upon audit examination the Department may find it necessary to default to the highest classification rate. This classification may be either the Retailing classification (retail sales tax also applies in this case), or the Service and Other Activities classification.
For example, if it is clear that work is performed for a customer in the construction industry, but it is not clear from the sales documentation that the customer is making a purchase of staffing services for resale, the Department will consider the sale to be retail in nature. Retail sales tax must be collected from the customer. In this case, it must be demonstrated that the customer is not a speculative builder (that is, not the consumer of the services provided). A sale to a speculative builder is a retail sale, subject to the Retailing B&O tax, and retail sales tax is to be collected from the customer.
Incorrectly classified income – amended returns
If, subsequent to filing a return, it is later determined by the staffing business that income has been incorrectly classified, amended returns should be submitted to the Department to make the appropriate adjustment.
Information leading to a change in classification may occur when visiting or inspecting a new customer's operation. It may be determined by the staffing business that another B&O tax classification applies during a subsequent request for labor, at which time more details of the work assignment are revealed. At such time as it is clear that a different B&O tax classification should apply from the classification reported, a correction should be made on amended returns.
The requirement for filing amended returns is limited to the past four calendar years, plus all returns filed during the current year.
Reliance on the best information available
Staffing businesses are expected to use all information reasonably available for purposes of reporting under the proper tax classification. In all cases, upon review or examination by the Department, all facts and information will be used to verify the classification(s) reported. Learn more information about our Audit Process.
Customer's responsibility to keep records
The customer has a responsibility to keep sufficient records to document the nature of the goods or services purchased by them. The Department requires the buyer of services to keep sufficient records in order to determine their true tax liability. This includes any liability for retail sales tax, or use tax, due on purchases of goods or retail services. Failure of the customer to retain such records may cause the retail sales tax to be imposed directly on them.
Re-billing for retail sales tax
The customer is obligated to cooperate with the staffing business when documenting any claimed exemption from retail sales tax. Lacking evidence to establish an exemption, the staffing business may re-bill the customer for previously uncollected sales tax.
Re-billing may occur in those cases where additional information is obtained by the staffing business that indicates retail sales tax should have applied to the original billing. It may occur because the work performed by the worker is not as described, or understood, when the worker is dispatched. Until paid either to the Department or to the staffing business, the customer remains legally obligated to pay the sales tax.