HR Options, Inc. v. Zaino
| Decision Date | 07 January 2004 |
| Docket Number | No. 2002-1477.,2002-1477. |
| Citation | 800 NE 2d 740,100 Ohio St.3d 373 |
| Parties | H.R. OPTIONS, INC., APPELLEE, v. ZAINO, TAX COMMR., APPELLANT. |
| Court | Ohio Supreme Court |
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Bricker & Eckler, L.L.P., and Mark A. Engel, for appellee.
Jim Petro, Attorney General, and Robert C. Maier, Assistant Attorney General, for appellant.
{¶ 1} H.R. Options, Inc. ("HRO") is a California-based human resources firm that provides third-party employment services for its clients. HRO serves as the employer of record for persons whose services its clients want to utilize but whom the clients do not want to hire as employees or as independent contractors. By having HRO hire the desired personnel and furnish them for the clients' use, the clients are able to avoid various potential tax and pension problems. HRO hires persons referred to it by the clients, puts them on its own payroll, and provides them for use by its clients.
{¶ 2} HRO pays the employee's wages, as well as all the taxes and other costs associated with being an employer. HRO bills the client for reimbursement of the wages and all other costs (taxes, FICA, etc.) it pays as the employer. As compensation for its services, HRO also charges its clients a fee, which is a markup based on the wages paid to the employee and other factors.
{¶ 3} HRO and the five clients it had in Ohio entered into written agreements that provided that the client desired to retain HRO as the common-law employer of employees with appropriate qualifications and skills to provide services to be utilized by the clients. The agreements further provided that the clients would refer candidates to HRO for employment. HRO does not fill the employment needs of any of its clients from its own pool of available employees. Most of the agreements between HRO and its clients provided for a term of two or three years. However, some of the contracts included the right to terminate 30 days after written notice.
{¶ 4} The agreements between HRO and its employees provided that the employees could be terminated at any time, without cause, with or without notice, at the option of HRO or the employee. With only a few exceptions, the employment agreements between HRO and the employees it provided contained a starting date, but no ending date.
{¶ 5} The Tax Commissioner assessed HRO a sales tax for the audit period January 1, 1993, through June 30, 1997. HRO filed a petition for reassessment. After a hearing, the Tax Commissioner affirmed his assessment, finding that HRO services constituted an "employment service" as defined in R.C. 5739.01(JJ). The Tax Commissioner further found that HRO's contracts with its clients did not meet the requirements for exclusion from the tax on "employment service" found in R.C. 5739.01(JJ)(3). HRO appealed to the BTA.
{¶ 6} The BTA reversed the Tax Commissioner, finding that HRO's activities did not meet R.C. 5739.01(JJ)'s definition of an "employment service." The BTA found that HRO did not provide or supply personnel as required by that definition. Instead, the clients referred personnel to HRO. Moreover, even if HRO were an employment service, the employees were assigned to the clients on a permanent basis, within the meaning of the exclusion contained in R.C. 5739.01(JJ)(3), because the employees were never reassigned by the service provider and were assigned for an indefinite duration.
{¶ 7} This cause is before the court upon an appeal as of right.
{¶ 8} In his brief, the Tax Commissioner contends that the BTA did not have jurisdiction to consider whether the transactions between HRO and its clients constituted an employment service. Although the Tax Commissioner raised this jurisdictional issue for the first time in his brief to this court, we will treat the Tax Commissioner's contention as preserved because a party cannot waive subject-matter jurisdiction, regardless of procedural deficiencies. Mid-States Terminal, Inc. v. Lucas Cty. Bd. of Revision (1996), 76 Ohio St.3d 79, 82, 666 N.E.2d 1077.
{¶ 9} When an appeal is filed with the BTA from a final determination of the Tax Commissioner, R.C. 5717.02 requires that the notice of appeal "shall also specify the errors therein complained of." This court has previously stated that in resolving questions regarding the effectiveness of a notice of appeal, we are not disposed to deny review by a hypertechnical reading of the notice. MCI Telecommunications Corp. v. Limbach (1994), 68 Ohio St.3d 195, 197, 625 N.E.2d 597. We find that under a fair reading, the notice of appeal filed by HRO with the BTA does raise the issue of whether HRO was providing an employment service and, therefore, we deny the Tax Commissioner's challenge to the BTA's jurisdiction to decide the issue of whether HRO was providing an employment service.
{¶ 10} The Tax Commissioner next contends that the BTA erred in finding that the services provided by HRO do not constitute an "employment service." R.C. 5739.01(JJ) defines the term "employment service" as "providing or supplying personnel, on a temporary or long-term basis, to perform work or labor under the supervision or control of another, when the personnel so supplied receive their wages, salary, or other compensation from the provider of the service."
{¶ 11} When the BTA considered the facts of this case, it determined that its decision in Moore Personnel Serv., Inc. v. Zaino (Apr. 12, 2002), B.T.A. No. 99-R-2098, 2002 WL 595178, was dispositive. The business of Moore Personnel Services, Inc. was conducted in essentially the same manner as that of HRO. In both cases, the taxpayers served as employer of record for employees that were sent to them by their clients. In both cases, the taxpayers contended that, since they did not recruit the employees, they were not "providing" or "supplying" the personnel within the meaning of R.C. 5739.01(JJ).
{¶ 12} This court decided Moore Personnel Serv., Inc. v. Zaino, 98 Ohio St.3d 337, 2003-Ohio-1089, 784 N.E.2d 1178, after HRO had filed this appeal. We reversed the BTA's decision in Moore and held that Moore's activities constituted an "employment service." In that decision we stated:
{¶ 13} Moore Personnel Serv., Inc. at 1120.
{¶ 14} The facts in this case are essentially identical to those in Moore. The only basis for the BTA's decision that HRO's activities did not constitute an employment service was its decision in Moore, and since that decision has been reversed by this court, the BTA's decision finding that HRO's activities did not constitute an "employment service" is also reversed. Thus, we conclude that HRO is an employment service under R.C. 5739.01(JJ).
{¶ 15} Because HRO's activities constitute an "employment service," then the separate and distinct issue arises of whether the BTA erred in finding that HRO's services were excluded from the definition of "employment service" by R.C. 5739.01(JJ)(3), which became effective July 1, 1993. Am. Sub.H.B. No. 152, 145 Ohio Laws, Part III, 4297. After setting forth the definition for "employment service," R.C. 5739.01(JJ) sets forth four exclusions. The exclusion at issue here, R.C. 5739.01(JJ)(3), excludes from the definition of "employment service," and therefore from taxation, transactions where the provider of the...
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