ORIGINAL

In the

^&LtpCETIT:P Court of obiD

BAY MECHANICAL & ELECTRICALCORPORATION,

^.r^nellant

V.

RICHARD A. LEVIN,[JOSEPH W. TESTA], TAXCOMMISSIONER OF OHIO,

Appellee.

Case No. 2011-1197

On Appeal from theOhio Board of Tax Appeals,Case No. 2008-K-1687

MERIT BRIEF OF APPELLEE JOSEPH W. TESTA,TAX COMMISSIONER OF OHIO

JOSEPH T. DATTILO* (0010398)*Counsel ofRecord

Thomas J. Ubbing (00002456)Caroline L. Marks (0071150)Brouse McDowell, L.P.A.600 Superior Avenue East, Suite 1600Cleveland, OH 44114Telephone: (216) 830-6830Facsimile: (216) 830-6807jdatillo@brouse.comtubbing@brouse.comcmarks@brouse.com

Counsel for AppellantBay Mechanical & Electrical Corporation

MICHAEL DEWINEOhio Attorney GeneralSOPHIA HUSSAIN* (0081326)

*Counsel ofRecordAssistant Attorney GeneralTaxation Section30 East Broad Street, 25th FloorColumbus, Ohio 43215Telephone: (614) 466-5967Facsimile: (614) 466-8226sophia.hussain@ohioattomeygeneral.gov

Counsel for Appellee, Joseph W. Testa,Tax Commissioner of Ohio

JAN '1 I 2OiZ

CLERK OF COURTI SUPREME COURT OF OHIO I

TABLE OF CONTENTS

...TABLE OF AUTHORITIES ...................................................................:......................................nr

1. INTRODUCTION ...................................................................................:...........................1

II. STATEMENT OF THE CASE AND FACTS ....................................................................2

A. Background about Bay ............................................................................................2

1. Bay's Workforce Needs Constantly Fluctuate and, Therefore, ItDetermines Its Staffing Levels on a Week-By-Week Basis ........................3

2. The Length of Bay's Employment of Leased Employees ...........................4

3. Bay's Employment Service Contracts with CLC and Tradesmen ..............6

B. The Department of Taxation's audit ...........:............................................................6

C. The Board of Tax Appeals hearing ..........................................................................7

1. Ms. Gross's Knowledge Regarding Terms of Leased Employees'Employment with Bay ................................................................................. 8

2. Admission of the Summary Sheets .............................................................. 8

D. The BTA's Decision ................................................................................................9

III. ARGUMENT ...................................:...................................................................................9

Standard of Review ............................................................................................................. 9

Tax Commissioner's First Proposition of Law:

The employment services provided by CLC and Tradesmen are not excluded fromsales tax, pursuant to R.C. 5739.01(JJ)(3) because Bay Mechanical failed toprove, through the contract and facts and circumstances, that each leasedemployee was assigned to Bay Mechanical on a permanent basis. (KR. Options,

Inc. v. Zaino, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, followed.) ................ 11

A. By themselves, the contracts between Bay and its vendors do not satisfythe second element of the exclusion in R.C. 5739.01(JJ)(3) because theydo not establish that each employee covered under the contract is assignedto the purchaser on a permanent basis .. .................................................................13

B. Bay failed to establish the existence of contracts with the leasedemployees that would provide some evidence of permanence.Accordingly, the BTA appropriately considered the remaining factors forpermanence under H.R. Options ...... .................................... .................................. 16

C. The evidence demonstrates that the leased employees were employed tomeet "short-term workload conditions." Thus, the leased employees arenvi aSSIg"aaedtv Ba j' C.n ape ^ma^nent hacic -.. 20

IV. CONCLUSION .................................................................................................................23

CERTIFICATE OF SERV ICE ..... ................................................................................. unnumbered

APPENDIX

Advantage Services, Inc. v. Tracy,BTA No. 1995-T-1391, 1998 Ohio Tax LEXIS 1382 (Oct. 30, 1998) ...............................1

Excel Temporaries, Inc. v. Tracy,BTA No. 97-T-257, 1998 Ohio Tax LEXIS 1383 (Oct. 30, 1998) .....................................6

J.Z.E. Elec., Inc. v. Wilkins,BTA No. 2006-A-2218, 2009 Ohio Tax LEXIS 800 (May 19, 2009) ...............................14

Pallet World, Inc. v. Levin,BTA No. 2007-M-116, 2010 Ohio Tax LEXIS 991 (June 10, 2010) ................................17

The Premium Glass Company, Inc. v. Zaino,BTA No. 2003-T-1475, 2005 Ohio Tax LEXIS 1013 .......................................................22

ii

TABLE OF AUTHORITIESCases Page(s)

Advantage Services, Inc. v. Tracy,BTA No. 1995-T-1391, 1998 Ohio Tax LEXIS 1382 (Oct. 30, 1998) ....................... 15,19

Belgrade Gardens v. Kosydar,..............................................................................^38 ^vhio Si.2d i35 311 N.E.2d 1 (1974 ^

Campbell Soup Co. v. Tracy,88 Ohio St. 3d 473, 477-478, 727 N.E.2d 1259 (2000) ...............................................10. 23

Copperweld Steel Co. v. Lindley,31 Ohio St.3d 207, 509 N.E.2d 1242 (1978) .....................................................................20

Craftsman Type, Inc. v. Lindley,6 Ohio St.3d 82, 451 N.E.2d 768 (1983) ...........................................................................20

EOP-BP Tower, LLC v. Cuyahoga Cty. Bd. of Revision,106 Ohio St.3d 1, 2005-Ohio-3096, 829 N.E.2d 686 ........................................................ 10

Excel Temporaries, Inc. v. Tracy,BTA No. 97-T-257, 1998 Ohio Tax LEXIS 1383 (Oct. 30, 1998) .............................16, 19

H.R. Options, Inc. v. Zaino,100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740 ...................................................passim

H.R. Options, Inc. v. Wilkins,102 Ohio St.3d 1214, 2004-Ohio-2085, 807 N.E.2d 363 ...........................................10, 23

J.Z.E. Elec., Inc. v. Wilkins,BTA No. 2006-A-2218, 2009 Ohio Tax LEXIS 800 (May 19, 2009) ..............2, 15, 19, 23

May Company v. Lindley,I Ohio St.3d 6, 437 N.E.2d 295 (1982) .............................................................................20

National Tube Co. v. Glander,157 Ohio St. 407, 105 N.E.2d 648 (1945) .........................................................................10

Pallet World, Inc. v. Levin,BTA No. 2007-M-1 16,2010 Ohio Tax LEXIS 991 (June 10, 2010) ................................23

Plain Local Sch. Bd. ofEduc. v. Franklin County Bd. ofRevision,130 Ohio St. 3d 230, 2011-Ohio-3362; 957 N.E.2d 268 ................................................... 10

ui

Satulla v. Wilkins,111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954 ....................................................10

Seven Hills School v. Kinney,28 Ohio St.3d 186, 503 N.E.2d 163 (1986) .........................................................................9

Standards Testing Laboratories, Inc: v. Zaino,................................................N . E .2d 12781v^0 ^vhiV St.3d 240, 2003-Ohio-58.a , 79;^ .. .^

The Premium Glass Company, Inc. v. Zaino,BTA No. 2003-T-1475, 2005 Ohio Tax LEXIS 1013 .................................................15, 19

Statutes, and Rules Page(s)

R.C. 5717.04 ....................................................................................................................................9

R.C. 5739.01(B)(3)(k) ...................................................................................................................11

R.C. 5739.01(JJ) .....................................................................................................................passim

................................................................................................................R.C. 5739.01(JJ)(3) passim

R.C. 5739.02 ..................................................................................................................................11

iv

I. INTRODUCTION

Bay Mechanical & Electrical Corporation ("Bay") did not remit sales tax on its lease of

temporary employees from employment service providers Construction Labor Contractors

("CLC") and Tradesmen Interuational, Inc. ("Tradesmen".) Appellee's Supp. 3-5. Bay claims

that its purchases of these services were excluded transactions pursuant to R.C. 5734.01(JJ)(3).

That provision excludes from normally taxable employment services "[s]upplying personnel to a

purchaser pursuant to a contract of at least one year between the service provider and the

purchaser that specifies that each employee covered under the contract is assigned to the

purchaser on a permanent basis." The dispute here centers on the second part of the statute,

which requires the "permanent" assignment of leased employees to the purchaser.

In H.R. Options, Inc. v. Zaino, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, this

Court held that "both the contract and the facts and circumstances of the employee's assignment

are factors that must be reviewed to determine whether the employee is being assigned on a

permanent basis." H.R. Options at ¶ 21.

A review of the evidence presented by Bay, in light of H.R. Options, demonstrates that

the leased employees were not permanently assigned. First, there were no individualized

contracts between the employees and Bay, as there were in H.R. Options. Although Bay claims

that there were oral contracts, the sole snippet of testimony that it relies on fails to support that

assertion.

The remaining evidence fails to prove that the employees were permanently assigned.

Bay chose to rely solely upon the oral testimony of its controller, Mary Lou Gross, at the Board

of Tax Appeals ("BTA") hearing and summary sheets created by her. As the BTA correctly

held, Bay's evidence not rise to the necessary levels of competent evidence and fails to satisfy

1

the burdens attendant with the instant appeal. H.R. Options, 100 Ohio St.3d 373, 2004-Ohio-1,

800 N.E.2d 740, at ¶¶21-23; Standards Testing Laboratories, Inc. v. Zaino, 100 Ohio St.3d 240,

2003-Ohio-5804, 797 N.E.2d 1278, ¶¶ 10-11; Belgrade Gardens v. Kosydar, 38 Ohio St.2d 135,

311 N.E.2d 1 (1974); J.Z.E. Elec., Inc. v. Wilkins, BTA No. 2006-A-2218, 2009 Ohio Tax

LEXIS 800 (May 19, 2009). To the contrary, the evidence provided by Bay paints a picture of a

company that hires temporary workers as needed, when its own workforce is insufficient to

fulfill the needs of ongoing projects. Appellant's Supplement ("Supp.") 30-31, 46. Hiring needs

at Bay were determined on a rolling, weekly basis. Supp. 52. And once the need for extra help

ended, those temporary employees were terminated. Supp. 46-47. Of the temporary employees

utilized by Bay, none worked longer than one year, most worked less than six months, many for

a period of weeks. Supp. 62-65. Far from permanent employees, none of these employees

worked as long as Bay's contract with it vendors. The evidence offered by Bay established that

the leased employees were hired to meet short-term workload conditions. Thus, under H.R.

Options, these employees were not permanently assigned.

In sum, Bay failed to support its claim that each of the leased employees was actually

assigned on a permanent basis, as required by R.C. 5739.01(JJ)(3). Accordingly, this Court

should affirm the BTA's decision.

II. STATEMENT OF THE CASE AND FACTS

A. Background about Bay

Bay is a construction contractor headquartered in Lorain, Ohio. Supp. 25; Appellee's

Supp. 18. It provides electrical, plumbing, HVAC (heating, ventilation, and air conditioning),

and post-construction services to its customers as well as maintenance work. Supp. 25. As a

result, Bay employs personnel specialized in those fields. Appellee's Supp. 18. Bay also

occasionally functions as a general contractor on jobs. On those jobs, Bay performing the

2

electrical, plumbing and HVAC portions of the job and subcontracts out the work that is outside

of its expertise. Appellee's Supp. 3.

The size of Bay's projects varies from very large to small as evidenced by its project

costs, which ranges from millions of dollars to less than one hundred dollars. Appellee's Supp.

18, 37, 58-61. For the time period at issue in this appeal, Bay's Bellevue Hospital project was

one of the largest projects that Bay had ever gotten. Supp. 44-45.

l. Bay's Workforce Needs Constantly Fluctuate and, Therefore, ItDetermines Its Staffin¢ Levels on a Week-By-Week Basis

Bay has a core workforce of approximately fifty shop and field employees that it directly

employs. Supp. 52. However, the size of Bay's overall workforce fluctuates. Supp. 30. It goes

up or down depending on the number and size of the projects that Bay has pending at any given

time. Supp. 30-31, 52. Moreover, Bay's staffing needs on any given project increase when that

project reaches its "peak" and decrease after the project's "peak." Supp. 46. See also Supp. 33.

When a project is completed, if possible, Bay reassigns the employees in its core workforce that

were working on the completed project to one of its other projects; however, if Bay does not

have open positions in its other projects, it lays off such employees. Supp. 46-47.

As a result of its staffing need fluctuations, Bay determines the number of employees that

it needs on a "week-to-week basis." Supp. 52. If its staffing needs exceed the size of its core

workforce, Bay supplements its workforce by leasing additional employees through the purchase

of employment services from CLC and Tradesmen and, on one occasion, by "borrowing"

electricians from two electrical companies with electricians "on layoff status" for "two or three

months, [or p]ossibly longer."' Supp. 30, 33, 44.

1 Bay treated the electricians it "borrowed" from the electrical companies as taxable temporaryemployees and paid sales tax on the companies' invoices because they could have been calledback by their own employer at any time. Supp. 34.

3

As explained by its controller, Bay hired leased employees for its Black River Schools

project as follows:

[The project began] in December 2002. In January and Februaryof 2003 we had peak labor on that job, all of our employee, uh,plus we needed two additional pipefitters which were hired out ofti3c TradcSiien ofiiec. By iiid-Febiuar`y', uii, the p.eak part .^,f the

project was over and the crew size came down, but then the jobcontinued probably through the end of 2005 when it was closedout.

Supp. 45-46. The two pipefitters referenced were Harley Eaves and John Treible. Supp. 64.

Mr. Eaves was assigned to the Black River Schools project for just five weeks, January 3, 2003

until February 7, 2003. Id. Mr. Treible assigned to the project for six weeks, January 3, 2003

until February 14, 2003. Id. After Mr. Eaves' and Mr. Treible's assignments on the Black River

Schools project ended, they were terminated by Bay because "[t]here was no other work for

them." Supp. 46. See also Supp. 64

2. The Length of Bay's Employment of Leased Employees

In anticipation of the hearing in this matter, Bay's controller prepared "summary sheets"

reflecting information in the invoices Bay receives from CLC and Tradesmen. Supp. 43, 62-65.

The summary sheets list the name of each leased employee, the dates he or she started and

stopped working for Bay, the leased employee's trade, the project he or she worked on for Bay,

and the reason such employee was terminated. Supp. 62-65. The summary sheets do not

provide the number of hours each leased employee worked at Bay per day or per week. Supp.

62-65. They also do not indicate if the leased employee worked for Bay every day or every

week between the start and end dates. Id. As a result, it is impossible to know the exact amount

of hours, days or weeks that any leased employee worked for Bay. However, none of the

employees that Bay leased from CLC and Tradesmen worked for Bay for more than one year.

Id. One leased employee (Dean Stuckman) completed his assignment for Bay in just nine days.

4

Supp. 64. Three additional leased employees (Charles Simone, Dwayne Sims, and Krzysztof

Dominiak) completed their assignments in just two or three weeks. Id. Only eight of the twenty-

nine leased employees who finished their assignments under the original CLC and Tradesmen

contracts with Bay worked for Bay for more than six months? Supp. 62, 64. Only eleven of the

sixty-four leased employees that Bay leased under those original contracts worked for Bay more

than six months. Id. The leased employee whose employment was the longest was Mark Angst,

who worked 298 days for Bay. Supp. 62-65.

Bay terminated most of the employees it leased from CLC and Tradesmen after their

assignment on a specific project ended. Supp. 46-47, 50. Only five (Allen Dye, Michael Fumic,

Keith Hazard, Charles Peek and John Treible) of the sixty-nine total employees that Bay leased

from CLC and Tradesmen during the audit period were ever reassigned to a second project.

Supp. 62-65. However, even then, there were significant gaps between three of those leased

employees' original assignments and their second assignments from Bay. Id. Mr. Dye's

assignment on the Bellevue Hospital project ended on January 28, 2005. His next assignment

with Bay started more than ten months later, on December 5, 2005. Mr. Peek's assignment on

the Bellevue Hospital project ended on November 12, 2004. His next assignment with Bay

started on June 5, 2005 and only lasted a little over three months. Mr. Treible's assignment on

the Black River Schools projected lasted 42 days and ended on February 14, 2003. His next

assignment started on August 15, 2005 and lasted only 31 days. Additionally, despite having

completed two assignments for Bay, Messrs. Fumic and Hazard were each employed by it for a

total of less than five months. Supp. 64-65.

2 The eight leased employees were Rick Anthony, Allen Dye, Eugene Larue, William Roark,Mark Angst, James Burgess, Tommy Etheridge, and William Perkins.

5

3. Bay's Employment Service Contracts with CLC and Tradesmen

As stated in its brief, Bay entered into two contracts with CLC. The first CLC contract

was effective from December 1998 through June 2005. Supp. 4-6. That contract did not

specifically state that the leased employees would be supplied on a "permanent" basis; rather, it

stated they would be provided on "an indefinite basis" and "an indefinite basis as opposed to a

temporary or short-term basis." Id. Bay's second contract with CLC became effective on June

8, 2005. Supp. 7. According to Bay's controller, the only difference between the two CLC

contracts was the addition of the word "permanent" in the second contract. Appellee's Supp. 20.

Bay entered into three contracts with Tradesmen. The first Tradesmen contract was

effective from January 1997 through January 2005. Supp. 8-9. Like Bay's original contract with

CLC, Tradesmen's January 1997 contract stated leased employees were provided on "an

indefinite basis" and "an indefinite basis as opposed to a temporary or short-term basis." Bay's

second Tradesmen contract became effective on January 18, 2005. Supp. 10. The third

Tradesmen contract became effective in January 18, 2005 and provided for "non-permanent

labor." Supp. 40. Bay claims that Tradesmen did not provide any leased employees pursuant to

the contract for "non-permanent labor." Id.

None of Bay's contracts with CLC or Tradesmen identify the positions to be filled or the

names of the leased employees provided. Supp. 4-10.

B. The Department of Taxation's audit

Bay participates in the state of Ohio's direct pay program. Supp. 32; Appellee's Supp.

21. As part of that program, the Tax Commissioner audited Bay's purchases for the period of

January 1, 2003 through December 31, 2005 (the "audit period"). Appellee's Supp. 3, 20-21.

During the audit period, Bay purchased employment services from CLC and Tradesmen.

Appellee's Supp. 3, 32-35; Supp. 4-10. After reviewing Bay's contracts with CLC and

6

Tradesmen, the auditing agent requested that Bay provide the leased employees' timesheets and

related CLC and Tradesmen invoices. Appellee's Supp. 3-4, 8, 10-11, 25-26, 33-35, 40. At one

point, Bay agreed to provide the timesheets and invoices. Appellee's Supp. 33. However, when

the agent attempted to review the documents, Bay declined to provide them. Appellee's Supp.

33, 57. As a result of Bay's refusal to provide the documents, the auditing agent was unable to

determine if the parties' performance of the contract demonstrated that each leased employee

was assigned to Bay on an "indefinite" or "permanent" basis. Id. Therefore, the auditing agent

concluded that Bay's transactions with CLC and Tradesmen were taxable employment services,

because Bay failed to establish that it satisfied the requirements for the exclusion set forth in

R.C. 5739.01(JJ)(3). Appellee's Supp. 3-7, 33-37. Accordingly, the Tax Commissioner issued a

$74,574.65 sales tax assessment to Bay for these purchases. Appellee's Supp. 3-7, 32.

Thereafter, Bay filed a petition for reassessment contesting this assessment. Appellee's

Supp. 12. During the proceedings before him, the Commissioner again requested that Bay

provide a copy of its leased employees' timesheets and the invoices Bay received from CLC and

Tradesmen. Appellee's Supp. 10-11. Once again, Bay refused to provide these documents.

Appellee's Supp. 8.

C. The Board of Tax Appeals hearing

Bay appealed the Commissioner's final determination to the BTA. Supp. 12-15. On

August 31, 2010, the BTA held a hearing on this matter. Supp. 21. Bay offered the testimony of

Mary Lou Gross, its controller. Supp. 28. Ms. Gross provided little explanation as to her job

duties other than testifying that she supervises Bay's payroll and is in charge of its accounting

functions, including the reconciliation of the leased employees' timecards and invoices. Supp.

25.

7

1. Ms. Gross's Knowledge Regarding Terms of Leased Employees'Employment with Bay

While Ms. Gross answered "yes" in response to leading questions as to whether she had

"firsthand knowledge as to the specific terms under which each leased employee [was] leased by

,-,__» rc.___ nc% a- ..,........;...,te« ,.P t,o. ♦o. 5...,7'r;.,,.,,,., hn. re that the infnrmatinn she receivedbay ^JUiJp. GJ), L11G tciiiauiua^i va ii^.i 1wL ......... ..,

regarding Bay's leased employees was secondhand. For example, she described the procedure

by which Bay hired leased employees as follows:

The project managers in the field would notify the HR managerthat they needed employees with whatever skill sets they need. Ifthere were no core employees available and no applicants to hire,then the HR manager would contract [sic] either CLC orTradesmen and make arrangements to lease somebody that wouldshow up at the job site when they were needed. He then told mewhat their hourly rate would be and their name, uh, so that whentime cards came in at the end of the week and then invoicesfollowed earlier the next week, I could do that reconciliation anddetermine if the invoice was correct.

.Supp. 41-42 (emphasis added). Similarly, when asked if she would have known that, at the time

a leased employee was initially hired, Bay had a definite ending date with respect to their

employment, Ms. Gross responded:

Yes. He [Bay's project manager in the field] would have told methat they were temporary employees or they would be there until acertain date. * * *

Supp. 42 (emphasis added).

2. Admission of the Summary Sheets

At the end of the hearing, the Conunissioner objected to the admission of Bay's summary

sheets based upon Evidence Rule 1002. Supp. 57-58. The Hearing Examiner overruled the

Commissioner's objection, received the sununary sheets into the record, and stated that the BTA

would "accord the appropriate weight to ... them." Supp. 58.

8

B. The BTA's Decision

On June 14, 2011, the BTA entered its Decision and Order, affirming the

Commissioner's final determination. Appellant's Appx. ("Appx.") 5-10. In reaching its

decision, the BTA properly determined, as did the Commissioner, that Bay's contracts with CLC

and Tradesmen did not establish that Bay's transactions with CLC and Tradesmen were not

taxable employment services under the R.C. 5937.01(JJ) exclusion. Id. The BTA found that

Bay failed to present sufficient evidence to establish that the leased employees had been assigned

on a permanent basis. Appx. 8-10. In reaching its holding the BTA relied upon the plain

language of R.C. 5739.01(JJ)(3) as well as this Court's seminal decision in H.R. Options, 100

Ohio St.3d 373, 2004-Ohio-1; 800 N.E.2d 740. Appx. 5-10. The BTA found that Bay's

contracts purchasing employment services, the testimony of Bay's controller, as well as the

summary sheets without underlying documentation, did not rise to the level contemplated by this

Court in H.R. Options and were insufficient to support Bay's claimed errors. Appx. 9-10.

III. ARGUMENT

Standard of Review

The Court's revisory jurisdiction in this case is statutorily delineated in R.C. 5717.04: "If

upon hearing and consideration of such record and evidence the court decides that the decision of

the board appealed from is reasonable and lawfal, it shall affirm the same ***." Thus, this

Court's "duty is limited to determination of whether the decision of the Board of Tax Appeals

was unreasonable or unlawful." Seven Hills School v. Kinney, 28 Ohio St.3d 186, 186-187, 503

N.E.2d 163 (1986).

The standard for reviewing the BTA's determination as to the credibility of witnesses and

the weight to be given their testimony is highly deferential: the Court will not reverse unless the

appellant demonstrates an abuse of discretion. Plain Local Sch. Bd. of Educ. v. Franklin County

9

Bd, ofRevision, 130 Ohio St. 3d 230, 2011-Ohio-3362; 957 N.E.2d 268, at ¶ 30, EOP-BP Tower,

LLC v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 1, 2005-Ohio-3096, 829 N.E.2d 686,

¶ 14. See also Campbell Soup Co. v. Tracy, 88 Ohio St. 3d 473, 477-478, 727 N.E.2d 1259

(2000) (holding that the BTA did not abuse its discretion in failing to grant a witness's testimony

credibility or his reports any weight).

"As for the burden of proof, it rests on the taxpayer `to show the manner and extent of the

error in the Tax Commissioner's final determination."' Satulla v. Wilkins, 111 Ohio St.3d 399,

2006-Ohio-5856, 856 N.E.2d 954, at ¶15, quoting Standards Testing Laboratories, 100 Ohio

St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, at ¶ 30. The Tax Commissioner's findings "are

presumptively valid, absent a demonstration that those findings are clearly unreasonable or

unlawful." Id., citing Nusseibeh v. Zaino, 98 Ohio St.3d 292, 2003-Ohio-855, 784 N.E.2d 93,

¶ 10. Additionally, any claimed exemption or exclusion from taxation must be strictly construed

in favor of taxation, and the burden rests with the taxpayer to affirmatively establish its right

thereto. Id.; National Tube Co. v. Glander, 157 Ohio St. 407, 105 N.E.2d 648 (1945). In the

present case, Bay is claiming that the services it received from CLC and Tradesmen are excluded

from taxation under R.C. 5739.01(JJ)(3). "Because R.C. 5739.01(JJ)(3) represents an exclusion

from taxation, it must be construed strictly against the taxpayer." H.R. Options, 102 Ohio St.3d

1214, 2004-Ohio-2085, 807 N.E.2d 363, at ¶ 2 (emphasis in original), citing In re Estate of

Roberts, 94 Ohio St.3d 311, 316, 2002-Ohio-791, 762 N.E.2d 1001.

10

Tax Commissioner's First Proposition of Law:

The employment services provided by CLC and Tradesmen are not excluded from sales

tax, pursuant to R.C. 5739.01(JJ)(3) because Bay Mechanical failed to prove, through thecontract and facts and circumstances, that each leased employee was assigned to BayMechanical on a permanent basis. (H.R. Options, Inc. v. Zaino, 100 Ohio St.3d 373, 2004-

Ohio-1, 800 N.E.2d 740, followed.)

Pursuant to R.C. 5739.02, "an excise tax is *** levied on each retail sale made in this

state," with R.C. 5739.01(B)(3)(k) defining the term "sale" to include "[a]ll transactions by

which *** [an e]mployment service is or is to be provided." R.C. 5739.01(JJ) defines

"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."

R.C. 5739.01(JJ)(3) excludes from the definition of "employment service," and therefore from

taxation, transactions where the provider of the service is:

Supplying personnel to a purchaser pursuant to a contract of atleast one year between the service provider and the purchaser thatspecifies that each employee covered under the contract is assignedto the purchaser on a permanent basis.

(Emphasis added).

In H.R. Options, Inc. v. Zaino, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, the

Supreme Court considered the statutory exclusion allowed by R.C. 5739.01(JJ)(3), and

concluded:

to be excluded from taxation under R.C. 5739.01(JJ)(3), anemployment service must prove two elements: (1) a contract of atleast one year between the service provider and the purchaser, and(2) a contract that specifies that each employee covered under thecontract is assigned to the purchaser on a permanent basis.

H.R. Options at ¶ 18.

11

The Commissioner and BTA both found that Bay's contracts with CLC and Tradesmen

were for at least one year and, therefore, Bay's employment of leased employees satisfied the

first element of R.C. 5739.01(JJ).

Regarding the second requirement, this Court held that "assigning an employee on a

permanent basis means assigning an employee to a position for an indefinite period, i.e., the

employee's contract does not specify an ending date and the employee is not being provided

either as a substitute for a current employee who is on leave or to meet seasonal or short-term

workload conditions." H.R. Options at ¶ 21 (emphasis added). This Court concluded that "both

the contract and the facts and circumstances of the employee's assignment are factors that must

be reviewed to determine whether the employee is being assigned on a permanent basis." Id.

Relevant factors include the actual length of the employee's assignment, and whether the

assignment is of a seasonal nature or serves to meet short-term workload conditions. Id. at ¶ 22.

In this case, the issue is whether the employees provided to Bay under agreement with

vendors were "permanent" employees. If so, the transactions between Bay and the vendors are

not taxable employment services under R.C. 5739.01(JJ)(3). However, as discussed below,

Bay's arguments fail. The contracts between Bay and the vendors do not, of themselves, entitle

Bay to tax exemption as a matter of law. Further, Bay has not demonstrated that the BTA abused

its discretion when it determined that the facts presented regarding the actual performance of the

contracts did not establish that the employees were permanent. Finally, the evidence introduced

actually supports the BTA's conclusion that the employees were placed at Bay for short-term,

not permanent, assignments. As this Court held in H.R. Options, employees obtained to meet

short-term workload conditions are not permanently assigned under R.C. 5739.01(JJ)(3).

12

A. By themselves, the contracts between Bay and its vendors do not satisfy thesecond element of the exclusion in R.C. 5739.0I(JJ)(3) because they do notestablish that each employee covered under the contract is assigned to thepurchaser on a permanent basis.

Bay spends a considerable amount of its brief in an attempt to convince this Court that

+L.o. +« +^ h A •+1, +ho .,A., ^,f iP P.7 emplnyee- u^µff9fi^r,e tn tn,rnve the elements of R CLlll. VV11L1acLJ 1 aU w1L11 V vviiuvi.^ v vuvv • •

5739.01(JJ)(3) without the need for any other evidence. Merit Brief of Apt. at 11-18. The thrust

of its argument is that, because its contracts with the vendors specified that employees would be

provided for either "indefinite" or "permanent" terms, the contracts themselves establish that the

employees are permanent and therefore the services are excluded from taxation. Id at 12-14.

However, Bay's arguments are unsupported by statutory language and this Court's precedent.

This Court addressed and rejected Bay's argument in H.R. Options, 100 Ohio St.3d 373,

2004-Ohio-1, 800 N.E.2d 740. In H.R. Options, this Court was faced with contracts for

provision of leased labor between a vendor/employment service and several

consumer/employers. Id. at ¶ 4. The majority of those agreements provided for indefinite terms

of appointment for the leased employees with the consumers. Id. The BTA found this fact to be

significant, and held that the employees were permanent, because the "employees were never

reassigned by the service provider and were assigned for an indefinite duration." Id. at ¶ 7. This

Court disagreed, explaining that a contract between vendor and consumer containing an

indefinite lease duration is insufficient alone to establish permanency. Id. at ¶ 21. In order to

determine whether an employee was permanent, "both the contract and the facts and

circumstances of the employee's assignment are factors that must be reviewed." Id. (emphasis

added). Thus, according to H.R. Options, the contract is only one factor of many that is to be

considered when determining whether an employee is permanent. Other factors include the

13

actual length of the employee's assignment, and whether "the assignment is of a seasonal nature

or serves to meet short-term workload conditions." Id at ¶ 22.

The Court's requirement of inquiry into the facts and circumstances of each employee's

assignment flows naturally from the statutory language of the tax exclusion, which provides that,

in order to qualify, the contract must specify that "each employee covered under the contract is

assigned to the purchaser on a pennanent basis." That is, while the contracts suggest that

employees of the vendors were intended to be placed "indefmitely" or "permanently" with Bay,

particularized information about each assignment is required in order to find that "each employee

covered under the contract is assigned [to Bay] on a permanent basis." R.C. 5739.01(JJ)(3); Id.

at ¶ 21 (emphasis added). The statutory and case law requirement of inquiry into the

circumstances of "each" employee's tenure is a recognition that each employee leased represents

a potentially taxable transaction. The contracts between the vendor and consumer alone are

insufficient to establish that each employee is assigned on a permanent basis. In order to prove

permanent assignment, the actual performance of the contract must show that each employee was

in fact assigned on a permanent basis.

In this case, the contracts suffer the same deficiencies as those in H.R. Options. Two

vendors, CLC and Tradesmen, supplied Bay with leased employees. The original contracts

between Bay and its vendors, which cover the majority of the sales assessed,3 do not specify an

ending date for the lease. Supp. 4-6, 8-9. This mirrors the open-ended agreements in H.R.

Options: the agreements in this case specify an "indefinite" term, while in H.R. Options,

indefiniteness was presumed from the open-ended nature of the clause.

3 The majority of Bay's employment service purchases assessed are provided under the originalcontracts with its vendors, due to the audit period being January 2003 through December 2005.(26 of the 28 CLC transactions assessed, and 26 of the 31 Tradesmen transactions assessed arecovered under the original contracts.)

14

In 2005, the agreements between Bay and the vendors were modified to include the word

"permanent" for the employment duration, applying to a minority of the assessed purchases in

this case 4 Supp. 7, 10. This modification does not alter the analysis. Under H.R. Options,

inquiry into the other relevant factors is necessary to determine the actual appointment of each

employee covered by the contract. A recitation of "permanence" in the contract may be some

evidence of the employee's status, but must be corroborated by the facts and circumstances of

each employee's assignment. KR. Options, 2004-Ohio-1 at ¶ 21.

The BTA has consistently followed H.R. Options by requiring inquiry into the facts and

circumstances of each employee's appointment. See, e.g., J.Z.E. Elec., BTA No. 2006-A-2218

at *5; The Premium Glass Company, Inc. v. Zaino, BTA No. 2003-T-1475, 2005 Ohio Tax

LEXIS 1013, * 9 (August 5, 2005); Advantage Services, Inc. v. Tracy, BTA No. 1995-T-1391,

1998 Ohio Tax LEXIS 1382, *14 (Oct. 30, 1998).

For example, in J.ZE. Elec., the contractor argued that its purchase of the leased

employees was excluded from sales tax by R.C. 5739.01(JJ)(3) because the contracts with the

vendors stated that the workers are provided "on an indefinite basis as opposed to a temporary or

short-term basis." J.Z.E. Elec., BTA No. 2006-A-2218, at *5. The BTA indicated that these

contracts were insufficient, despite the avowal that the employment was indefinite and not short-

term, because it was impossible to determine from the face of the agreements how, in fact, each

employee was actually used (i.e., pennanent or short-term). Id. at *7. Ultimately, the taxpayer

in J.Z.E. Elec. was unable to overcome this "ambiguity in the record" with its proffered evidence

° There was a third contract between Bay and Tradesmen effective January 2005 for theprovision of "non-permanent labor," but Bay claims that no leased employees were providedpursuant to this contract.

15

(consisting of hearsay testimony and unclear company records), and the BTA held that the

taxpayer had failed to meet its burden of proof. Id.

Likewise, in Excel Temporaries, the BTA explained that "in determining whether an

exception or exemption to taxation applies, it is not just the form of a contract that is important.

Excel Temporaries, Inc. v. Tracy, BTA No. 97-T-257, 1998 Ohio Tax LEXIS 1383 (Oct. 30,

1998), at *4-5. Instead, the crucial inquiry becomes a determination of what the seller is

providing and of what the purchaser is paying for in their agreement. Id. (citing Twentieth

Century-Fox Film Corp. v. Lindley, 2 Ohio St.3d 54, 55, 442 N.E.2d 766 (1982)). In this case,

the question is not just what the contract says, but what Bay actually purchased.

Thus, despite the existence of contracts between Bay and the vendors indicating

"indefinite" or "permanent" duration, the Tax Commissioner and BTA were right to inquire into

the facts and circumstances surrounding each employee's assignment.

B. Bay failed to establish the existence of contracts with the leased employeesthat would provide some evidence of permanence. Accordingly, the BTAappropriately considered the remaining factors for permanence under H.R.Options.

Bay argues that the Tax Commissioner and BTA erred by "requiring" individual

contracts between Bay and each leased employee to establish permanency. Not so. In reality,

the BTA and Tax Commissioner both recognized that, pursuant to H.R. Options, individualized

contracts are some evidence of permanence. See, Appx. 7-8 and Appellee's Supp. 6, both

quoting from H.R. Options for the proposition that the contract and the facts and circumstances

of each case must be reviewed in order to determine permanence. And both the BTA and the

Tax Commissioner proceeded to review facts and circumstances other than the contract in

arriving at their respective determinations. See Appx. 8-9 and Appellee's Supp. 6-8. But, the

16

fact is that, pursuant to H.R. Options, individual contracts between Bay and the leased employees

would have been relevant as some evidence demonstrating permanence.

In H.R. Options, the Court looked beyond the vague contracts between the vendor and

consumer to examine other available evidence of permanence, which in that case was found in

the individual contracts between the employees and the consumer. H.R. Options, 100 Ohio St.3d

373, 2004-Ohio-1, 800 N.E.2d 740. These contracts fell into three broad categories:

(1) contracts that provided for permanent assignment; (2) contracts that provided for seasonal

employment; and (3) contracts that specified no duration. The Court held that, with regard to the

first category of contracts where the contracts specified permanent assignment, the employees

could be considered permanent, but, in the second category, where the contracts specified

seasonal employment, the employees could not. H.R. Options at ¶¶ 24-25. With regard to the

third category of contracts-in which no employment term was specified-the Court determined

that the factual record was insufficient and remanded the issue back to the BTA to determine

whether the employees could be considered permanent based upon further evidence. H.R.

Options at ¶¶ 25-26. Accordingly, when, as here, there are no dispositive contracts between the

employees and the consumer to review, the BTA must take into account other facts and

circumstances that relate to permanence. Id. at ¶ 26.

In this case, Bay did not provide any individual employee contracts between itself and the

leased employees. And there is no way to determine from the information contained in the

contracts between Bay and the vendors specifically which employees are permanent and, thus,

covered by the agreements. Accordingly, in pursuance with H.R. Options, the BTA looked to the

remainder of the evidence presented. Id at ¶ 22.

17

Bay argues that the BTA "completely overlooked" oral contracts between itself and the

employees, none which it claims "contained a definite ending date for a leased employee's

service." Merit Brief of Apt. at 16. This argument suffers two flaws.

First, the testimony that Bay refers to does not establish the facts that it asserts. The

testimony cited by Bay is reproduced in its entirety below:

Q. Did Bay Mechanical enter into a separate writtenagreement with respect to any particular employee leased fromCLC or Tradesmen during the audit period?

A. No, they didn't.

Q. Although no separate written agreements were entered into,I assume there was an oral agreement or understanding betweenBay Mechanical and either CLC or Tradesmen as to each leasedemployee with respect to such matters as date of hire, hourly rates,so on and so forth; is that correct?

A. That is correct.

Q. And during the audit period, what was the procedure thatBay Mechanical took when hiring leased employees from CLC orTradesmen?

A. The project managers in the field would notify the HRmanager that they needed employees with whatever skill sets theyneed. If there were no core employees available and no applicantsto hire, then the HR manager would contact either CLC orTradesmen and make arrangements to lease somebody that wouldshow up at the job site when they were needed. He then told mewhat their hourly rate would be and their name, uh, so that whentime cards came in at the end of the week and then invoicesfollowed earlier the next week, I could do that reconciliation anddetermine if the invoice was correct.

Q. If any of those employees that were leased were at -- at thetime they were initially hired by Bay Mechanical had a definiteending date with respect to their employment with BayMechanical, would you have known that as part of your role ascontroller?

18

A. Yes. He would have told me that they were temporaryemployees or they would be there until a certain date. But therewere no employees under that description.

Supp. 41-42.

Without conceding the point, what this testimony establishes, at best, is that "there was

an oral agreement or understanding between Bay Mechanical and either CLC or Tradesmen as to

each leased employee with respect to such matters as date of hire, hourly rates, so on and so

forth." And, fiirther, that some unidentified third party would have told the witness if the

employees "were temporary employees or they would be there until a certain date." The

testimony does not establish, as Bay asserts, the existence of an oral contract governing the

duration of each employee's tenure with Bay.

Second, it is not true that the BTA completely overlooked this evidence. Indeed, the

BTA quoted from the proffered testimony on page 4 of its opinion. However, the BTA properly

concluded that this evidence failed to establish the existence of a contract. Moreover, even if the

BTA viewed this testimony-affirmative responses to leading and self-serving questions-as

evidence of an oral contract, the BTA could hardly qualify this scrap of hearsay as sufficient

evidence upon which to exclude the transactions from taxation. The BTA properly considered

the testimony and afforded it its proper weight.

Furthermore, the BTA has repeatedly held that when oral contracts are asserted, some

corroborating evidence of the performance of the contract may be necessary. See, e.g., J.Z.E.

Electric, Inc., BTA No. 2006-A-2218, at *9; The Premium Glass Company, Inc., BTA No. 2003-

T-1475, at *6; Excel Temporaries, BTA No. 97-T-257, at *7; Advantage Services, BTA No.

1995-T-1391, at *6-7. This requirement protects against the one-sided assertion of an oral

contract as a method to avoid taxation, when the parties' performance demonstrates otherwise.

19

Thus, even if Bay had demonstrated the existence of an oral contract, the Tax Connnissioner and

BTA would have properly confirmed the existence of the contract's terms through evidence of

actual performance.

Having no contracts between Bay and the employees to consider, the BTA turned to the

rest of the evidence to determine whether the leased employees were "seasonal" or "short term."

Pursuant to H.R. Options, the BTA was charged to consider other relevant factors of

permanence, including the actual length of the employee's assignment, and whether "the

assignment is of a seasonal nature or serves to meet short-term workload conditions." H.R.

Options, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, at ¶ 22, 26. The BTA did so, and

concluded that the evidence did not sustain the exception. Appx. 9-10.

C. The evidence demonstrates that the leased employees were employed to meet"short-term workload conditions." Thus, the leased employees are notassigned to Bay on a permanent basis.

This Court's decision in H.R. Options requires review of the facts and circumstances to

determine whether each employee is being assigned on a permanent basis. H.R. Options, 100

Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, at ¶21. The burden is upon Bay to demonstrate

entitlement to tax exemption through sufficient evidence. "It is well-settled that in order to

overcome the statutory presumption of taxability, a taxpayer must provide sufficient evidence to

demonstrate entitlement to exemption." Copperweld Steel Co. v. Lindley, 31 Ohio St.3d 207,

212, 509 N.E.2d 1242 (1978) (citing Craftsman Type, Inc. v. Lindley, 6 Ohio St.3d 82, 451

N.E.2d 768(1983); May Company v. Lindley, 1 Ohio St.3d 6, 437 N.E.2d 295 (1982)).

Instead of providing objective documentary evidence that speaks for itself, Bay chose to

rely upon the oral testimony of its controller, Mary Lou Gross, at the BTA hearing and summary

sheets created by her. Supp. 62-65. Yet, Ms. Gross's testimony and the summary sheets created

20

by her actually establish that Bay could not and did not assign leased employees on a permanent

basis, and instead they were actually used on a short-term project-by-project basis.

At the hearing, Ms. Gross' testimony established that Bay leases employees when a

particularly large project is at its peak work-load, and that as the work-load decreases leased

employees' assignments are terminated. Supp. 44-46. Thus, the magnitude of Bay's workforce

needs is correlative to the nature of the projects that it is working on. Supp. 30-31. When Bay

has bigger projects, its need for workers increases. This fluctuation in project volume requires

that Bay supplement its core workforce with short-term/temporary leased employees, and

consequently prohibits assigning leased employees to permanent positions. As a result, Bay

makes determinations about the number of leased employees needed on a week-to-week basis.

Supp. 52. And although Bay claims that the leased employees could potentially be assigned to

new projects a few months later, in reality only six of the seventy-eight employees leased from

CLC and Tradesmen during the audit period were reassigned to a second project. Supp. 62-65.

Bay's actual course of practice in using leased employees on its projects indicates that the leased

employees were not assigned on a permanent basis. Indeed, as Ms. Gross testified, "The bottom

line is, if there's work is [sic] available, they continue to work. If not, they are laid of£" Supp.

50.

Bay supplements its workforce, as needed, by leasing additional employees through

employment service contracts with CLC and Tradesmen. Supp. 30, 44. Bay did not lease any

CLC/Tradesmen employees for specific periods of time. Supp. 36. Thus, Ms. Gross' testimony

establishes that Bay takes on leased employees on an "as needed" basis only to satisfy short-term

staffing needs. Once the projects for which the leased employees are hired for is complete, those

employees are released. Supp. 46-47.

21

The summary sheets prepared by Ms. Gross actually buttress this conclusion. A review

of the sheets indicates that many, many temporary employees were terminated because the

"assignment was finished." Supp. 62-65. Many of these employees were retained for only a

period of weeks, many for less than three months, and still more for less than six months. See,

Statement of Facts Sec. A.3., see, also, e.g. Supp. 62-65. According to the summary sheets, none

of the employees leased during the three year audit period were retained for longer than 10

months (298 days, to be exact). Supp. 62-65.

Nor do the summary sheets prepared by Ms. Gross provide evidence of permanence. The

summary sheets did not provide any information about the hours worked by the leased

employees, and how these hours compared with Bay's core and temporary employees. Id. In

fact, there is no evidence in the records that clearly demonstrates the hours, employment

duration, and assignments of Bay's core employees. And even if this information was in the

record, it makes little difference how Bay treats its core employees-the question for purposes of

R.C. 5739.01(JJ)(3) is whether the leased employees are permanent. The summary sheets

demonstrate that the leased employees are actually short-term, as-needed employees.

In its merit brief, Appellant argues that Bay properly presented the summary sheets in

lieu of the underlying records pursuant to Evid.R. 1006 (sununaries of voluminous records).

However, this argument misses the point. The BTA admitted the summaries, but afforded them

little weight, based upon the facts and circumstances surrounding their preparation. The fact is

that the BTA properly determined that these summary sheets were not a probative and competent

reflection of the nature and extent of Bay's leased employee usage. In its decision, the BTA

found that the summary sheets, "gleaned from records not before us, and created well after the

parties entered into the aforementioned agreements," did not rise to the level contemplated by

22

this Court in H.R. Options and were insufficient to support Bay's claimed errors. Appx. 9-10;

H.R. Options, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740; H.R. Options, 102 Ohio St.3d

1214, 2004-Ohio-2085, 807 N.E.2d 363; Pallet World, Inc. v. Levin, BTA No. 2007-M-116,

2010 Ohio Tax LEXIS 991 (June 10, 2010); J.Z.E. Elec., BTA No. 2006-A-2218.

In sum, the BTA appropriately determined that the testimony of Ms. Gross and the

summary sheets prepared by her were of little probative value. Appx. 9. This determination was

not an abuse of discretion and must be affirmed. Campbell Soup Co. v. Tracy, 88 Ohio St. 3d

473, 477-478, 727 N.E.2d 1259 (2000) (holding that the BTA did not abuse its discretion in

failing to grant a witness's testimony credibility or his reports any weight). Accordingly, the

weight of the evidence tips in favor of the Tax Commissioner, and the BTA's decision must be

affirmed.

IV. CONCLUSION

For the foregoing reasons, the Conunissioner respectfully requests for this Court to affirm

the BTA's decision affirming the Commissioner's final determination.

Respectfully Submitted,

MICHAEL DEWINEOhio Attorney General

SOPI^IAT^USSAIN ( 0081326)Assistant Attomey GeneralTaxation Section30 East Broad Street, 25th FloorColumbus, Ohio 43215Telephone: (614) 466-5967Facsimile: (614) 466-8226sophia. hussain@ohioattorneygeneral. gov

Counsel for Appellee, Joseph W. Testa,Tax Commissioner of Ohio

23

CERTIFICATE OF SERVICE

I certify that a copy of the Merit Brief of Appellee Joseph W. Testa, Tax Commissioner

of Ohio, was sent by regular U.S. mail on this 1 lth day of January, 2012 to the following:

Joseph T. DattiloBrouse ^ eD .r.rell, L '.A.600 Superior Avenue East, Suite 1500Cleveland, OH 441144

Counsel for Appellant

Advantage Services, Inc., Appellant, vs. Roger W. Tracy, Tax Commis-sioner of Ohio, Appellee.

CASE NO. 95-T-1391 (SALES TAX REFUND)

STrHi"n OF OHIO -- BOARD OF TAX APPEALS

1998 Ohio Tax LEXIS 1382

October 30, 1998, Entered

COUNSEL:[*1]

APPEARANCES:

For the Appellant - Joseph P. Alexander, Roetzel & Andress, LPA, One Cleveland Center, 1375 East Ninth Street,Suite 1650, Cleveland, Ohio 44114.

For the Appellee - Betty D. Montgomery, Attomey General of Ohio, By: Robert C. Maier, Assistant Attomey Gen-eral, State Office Tower, 16th Floor, 30 East Broad Street, Columbus, Ohio 43215.

OPINION:

DECISION AND ORDER

Mr. Johnson, Ms. Jackson and Mr. Manoranjan concur.

This matter is before the Board of Tax Appeals pursuant to a notice of appeal filed under date of December 30,1995, by Advantage Services, Inc. Advantage appeals from a final determination of the Tax Commissioner, which wasissued on November 29, 1995. Therein, the Commissioner partially denied Advantage's claim for a refund of sales taxpaid on employment service transactions made from July 1993 through August 1994. The claim for refund concetnedtwo of Advantage's clients, to which Advantage had provided personnel. In his final determination, the Commissionerfound that Advantage's written service contract for one of the clients did not specify that each employee was assignedon a permanent basis, as required by R.C. 5739.01(JJ)(3), until the contract was amended [*2] on July 15, 1994. Ac-cordingly, he granted the refund only for transactions made after that date. For the other client, the Commissioner notedthat no contract information had been provided. Thus, he denied the claim. Of the $ 181,046.58 claimed, only $12,506.62 was allowed.

The Board of Tax Appeals now considers this matter upon the notice of appeal, the statutory transcript certified tothis Board by the Tax Commissioner, the briefs of the parties, and the record of the evidentiary hearing. Both partieswere represented by counsel at the hearing. Advantage introduced the testimony of James Corya, Advantage's President,and several documents in support of its claims of error. The Tax Commissioner offered no additional evidence butmoved the Board to affirm the Commissioner upon the record.

Advantage operates as an agency that provides personnel to businesses in Ohio and Indiana. Basically, Advantagefills positions that its clients have decided to outsource. This matter involves two of Advantage's Ohio clients, AmericanMatshushita Electronics Corp. (AMEC) and Yoder Industries.

Beginning in January 1993, R.C. 5739.01 was amended to include employment services as a taxable sale. R.C.[*3] 5739.01(BX3)(k). Under this provision, Advantage began to include and collect sales tax on all employmenttransactions with AMEC and Yoder. Effective July 1, 1993, however, the defmition of employment services wasamended to exclude certain situations. 145 v H 152, eff. 7-1-93. As amended, R.C. 5739.01(JJ) provides:

"(JJ)'Employment service' means providing or supplying personnel, on a temporary or long-termbasis, to perform work or labor under the supervision or control of another, when the personnel so sup-

Appx. 1

plied receive their wages, salary, or other compensation from the provider of the service. 'Employmentservice' does not include: * * *

"(3) Supplying personnel to a purchaser pursuant to a contract of at least one year between the ser-vice provider and the purchaser that specifies that each employee covered under the contract is assignedon a pennanent basis."

Advantage bases its refund claim upon the amendment to RC. 5739.01(JJ). Advantage contends that it providespersonnel on a p^•.n:anent basis to AMEC and Yoder „*+der a contract of at least one year, Consequently, Advantageclaims that its transactions with AMEC and Yoder are not employment services, as defined in R.C. [*4] 5739.01(JJ),and that the Commissioner erred in denying its entire claim for refund.

Initially, the Tax Commissioner asserts that we may not look to the testimonial evidence submitted by Advantage todetermine whether the terms of the statute have been met. Instead, the Commissioner contends that Advantage's refundclaim must succeed or fail based only upon the terms of a written contract. The Commissioner points out that R.C.5739.01(JJ)(3) expressly requires a contract of at least one year and that such a contract must specify that each employ-ee is assigned a permanent basis. The Commissioner insists that the contract requirement of "at least one year" placesthe contract under the Statute of Frauds provisions found in R-C. 1335.05, meaning that only written contracts are ac-ceptable as evidence of exception.

We have fully addressed the Commissioner's arguments in Excel Temporaries, Inc. v. Tracy, BTA No. 97-T-257,unreported, which is announced this date. Therein, we conclude that an oral contract may be considered valid for pur-poses of R.C. 5739.01(JJ)(3), even though it must be of "at least one year" in duration.

Nevertheless, although an oral contract may by relied upon, [*5] this does not mean that parol evidence may initself be sufficient in all cases to prove that the taxpayer's assigmnent of personnel is excluded from the definition of anemployment service. Corroborating evidence may be necessary to establish that such an agreement exists and that per-formance under the agreement meets the requirements contained within R.C. 5739.01(JJ)(3).

Moreover, our determination in Excel does not provide that a written contract is unnecessary under R.C.5739.01(JJ)(3) in every circumstance. Where the taxpayer has reduced its agreement to writing, that taxpayer may notrely upon parol evidence to amplify the terms of the written contract: "Where the parties following negotiation makemutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will notgive the contract a construction other than that which the plain language of the contract provides." Aultman Hosp. Assn.Y. Community Mut. Ins. Co. (1989), 46 Ohio St.3d 51, at the syllabus. Intentions that are not expressed in the writing aredeemed to not exist and may not be demonstrated by parol evidence. Aultman at 53. See, also, Charles A. Burton,[*6] Inc. v. Durkee (1952), 158 Ohio St. 313, at paragraph two of the syllabus; Steel Sanitary Co. v. Pangborn Corp.

(1930), 38 Ohio App. 65, at 70; and Hume, supra.

In addition to his Statute of Frauds argument, the Comniissioner contends that R.C. 5739.0 1 (JJ)'s reference to acontract that "specifies" that personnel are on permanent assignment requires a written contract. This view, however, isinconsistent with the definition of a contract:

"In its legal sense, the word 'contract' includes every description of agreement or obligation, whetherverbal or written, whereby one party becomes bound to another to pay a sum of money or to perform oromit to do a certain act."

Terex Corp. v. Grim Welding Co. (1989), 58 Ohio App. 3d 80, at 82. By its very definition, a contract, whether oral orwritten, requires specificity; the parties have communicated, in some manner, the terms to which they agree to bebound.

Where a taxpayer relies upon an oral contract to claim an exception under R.C. 5739.0 1 (JJ)(3) it is still necessaryfor that taxpayer to come forward with more than the mere assertion that personnel were assigned permanently. Whilecorroboration of the contract [*7] terms may be necessitated, however, the specificity requirement of R.C.5739.01(JJ)(3) does not limit consideration to only a contract that has been reduced to writing. Excel, supra.

With all of the foregoing in mind, we shall now review Advantage's claim with respect to each of the clients in is-sue. In so doing, we observe that the findings of the Tax Commissioner are presumptively valid. Consequently, it is

Appx. 2

incumbent upon a taxpayer chalienging a determination of the Tax Commissioner to rebut that presumption. Alcan Alu-minum Corp. v. Limbach (1989), 42 Ohio St.3d 121. When no competent and/or probative evidence is developed andproperly presented to the Board to establish that the Tax Commissioner's determination is "clearly unreasonable or un-lawful," the determination is presumed to be correct. Id. We also emphasize that exceptions and exemptions to taxationare to be strictly construed in favor of taxation, and the burden rests upon the taxpayer to affirmatively establish its rightthereto. National Tube Co. v. Glander (1945), 157 Ohio St. 407. See, also, Frankelite Co. v. Lindley (1986), 28 OhioSt.3d 29.

Advantage's President, Mr. Corya, testified that [*8] Advantage has been providing personnel to AMEC since1989. According to Mr. Corya, Advantage exclusively fills certain defmed positions for AMEC. Most of these out-sourced positions are in production. Mr. Corya testified that Advantage originally entered into a contract with AMEC in1989 and has renewed that contract in each subsequent year. Concerning the period in issue, Advantage entered into awritten contracfwith AMEC that began on May 1, 1992, and terminated on March 31, 1993. (Appellant's Exhibit E.)Mr. Corya testified that, after the written agreement had expired, Advantage and AMEC entered into a new agreement,wherein they orally agreed to continue their relationship under the same terms as contained in the 1992 agreement untila new, written contract could be signed. Advantage and AMEC continued under this oral agreement until September1993. At that time, a written contract was signed covering the period of September 19, 1993, through March 31, 1995.

Upon review, we find that we must consider two contracts. The first is the oral agreement of April 1993, underwhich theparties agreed to continue under the terms of the 1992 written agreement. We are unable to find, however,[*9] that Advantage is entitled to the exception for the two and one-half months included in the refund claim. Alt-hough Advantage asserts that this agreement was merely the continuation of the May 1992 written contract, we are una-ble to reach such a conclusion. The May 1992 contract, by its terms, terminated on March 31, 1993. The oral agreemententered into did not extend this contract. Instead, it was a new contract, one in which AMEC and Advantage agreed toapply the terms of the previous contract. Additionally, it appears that Advantage intended this agreement to be of shortduration. As Mr. Corya indicated, the termination of the oral agreement was not based upon the running on a specifictime period but upon a subsequent condition, i.e., the signing of a new contract. It is clear that the contract could termi-nate in under a year. Upon review, we must conclude that Advantage may not avail itself of the R.C. 5739.0 1 (JJ)(3)exception because the contract was not "at least one year" in duration.

Beginning with September 19, 1993, Advantage did have a written contract that had a duration meeting the "at leastone year" requirement. (Appellant's Exhibit A.) Our review of this document, [*10] however, discloses nothing thatcan be interpreted as specifying that each employee is assigned on a pennanent basis. At hearing, Advantage sought tointroduce the testimony of Mr. Corya about the relationship between Advantage and AMEC and how each of Ad-vantage's employees is placed with the client. Nevertheless, we cannot overlook the fact that we are faced with a writtenagreement. Thus, Advantage may not now come forward with parol evidence in an attempt to add terms not expressedin the writing. Aultman and Charles A. Burton, supra.

Next, Advantage refers to a July 15, 1994, amendment to the September 19, 1993, agreement as support for itscontention that the contract specifies that the employees are assigned on a permanent basis. The amendment reads, inpart:

"It is the intention of ASI and AMEC that each ASI employee covered under the Agreement (andunder the prior contracts between AMEC and ASI dating back to May 1, 1992) is assigned to AMEC ona permanent basis, however, this does not change the at will relationship of ASI and the employee (anemployee may be terminated by AMEC with or without cause). * * *

"* * * AMEC and ASI specifically intend that, effective [*11] July 1, 1993, payments for Con-tracted Personnel under this Agreement (and under prior contracts between AMEC and ASI) shall not besubject to Ohio sales and use tax by reason of ORC 5739.01(JJ)(3), which excludes from taxable em-ployment services payments for employees assigned to a purchaser on a permanent basis under a contractof at least one year." (Appellant's Exhibit C.)

The Tax Commissioner granted a refund of sales tax collected subsequent to the date of the amendment. Althoughnot specifically raised, Advantage's brief implies that the amendment relates back to the beginning of the contract periodand must be considered in determining whether a refund should be granted for the September 1993 through July 17,1994, period. We disagree. To the extent that the September 1993 contract has been executed and performed, Advantagemay not now include additional terms to supply an intent not originally specified in the written contract. We will not

Appx. 3

disturb the Commissioner's decision to grant the refund claim on those transactions occurring after the July 1994

amendment.

Advantage next argues that the Commissioner improperly denied its refund claim for services it provided to Yoder[* 12] because the Conimissioner incorrectly determined that there was no contract between the entities. At hearing,Mr. Corya testified that its relationship began sometime in mid or late 1992. Advantage, however, did not pravide uswith a written contract for this earlier period. Advantage has presented us with a written proposal for services that beganin 1994. The proposal contains a cover letter, dated February 19, 1994, which has been countersigned by Yoder to indi-cate acceptance of the proposal. (Appel"lant's ExhibitH.) Aithough the cover letter is dated for February 1994, the bodyof the proposal states that the "contract will be in effect beginning February 2, 1993 and remain effective through De-cember 31, 1994." (Appellant's Exhibit H, numbered page 42.) The document fiuther provides:

"Each ASI employee covered under the contract is assigned to Yoder on a permanent basis (meaningthey will not be transferred to another client company in the case of termination or lay-off); however, thisdoes not change the at will relationship of ASI and the employee ***."

This document was submitted to the Tax Commissioner for consideration in the final deterniinat3on. The Commis-sioner, [*13] however, denied the Yoder claim on the basis that there was no contract. Consequently, he made nodetermination as to whether employees were permanently placed.

The document contains a clear proposal by Advantage to supply Yoder services according to the terms containedtherein. The cover letter indicates that Yoder could indicate its "acceptance" of the proposal by signing in a place des-ignated on the letter. The letter is indeed signed by someone on behalf of Yoder, thereby effectuating acceptance. Thedocument also contains an exchange of mutual promises. Advantage agrees to supply staff for some of Yoder's workstations. By the terms of the document, Yoder agrees to pay Advantage for the staff provided. Thus, there has been val-uable consideration. In short, the document has all of the necessary elements of a contract.

Our difficulty stems from the effective dates of tke contract. The contract purports to begin in Febmary 1993, a pe-riod well before the time Advantage and Yoder entered into the written agreement. nl Advantage has not presented anyevidence to corroborate the transactions that occurred between it and Yoder. No representative of Yoder has come for-ward to describe [* 14] the nature relationship nor has such an individual clarified to our satisfaction the time periodin which the proposal was submitted and accepted. Compare Excel, supra.

nl On Cross-Examination, Mr. Corya suggested that the February 1994 date of the cover letter might be anerror. His testimony, however, was unconvincing in that he was unable to recall the facts surrounding the pro-posal. More significant, we find that the terms of the proposal are more consistent with being made in 1994. Forexample, the proposal sets forth a rate schedule that begins to run on April 1, 1994.

From our review of Mr. Corya's testimony and the limited record before us, we must conclude that Advantage andYoder had an oral contract beginning in February 1993. No corroboration of the terms of these oral contracts has beenpresented, however, which would lead us to conclude that Advantage's employees were being specifically assigned on apermanent basis. Neither can we be sure of the exact length of the agreement.

With the implementation of the new, written agreement in February 1994, however, Advantage states that its em-ployees were being assigned permanently. The difficulty, again, is that Advantage [* 15] may have attempted to"grandfather" in its earlier, oral contract. As we found with the AMEC contract, Advantage may not retroactively applythe exclusian to transactions that have already occurred. Advantage's reference to the period of Febmary 1993 throughFebruary 1994 must be, without evidence to the contrary, considered as a portion of an agreement that has been per-formed prior to the time in which the statement conceming the permanent assignment of employees exists. In any case,Advantage has offered no additional evidence to substantiate a fmding that the contract was made prior to February1994.

Regarding the period covered by the written contract, we are mindful that the document's reference to permanentassignment is still subject to performance. Advantage seeks a refund on services it claims have been performed in ac-cordance with the terms of the agreement. However, in claiming a refund, Advantage must be prepared to support itsassertion that each of its employees was indeed assigned on a permanent basis. In other words, Advantage must corrob-

Appx.4

orate its assertions by proof of the assignment of specific employees. From the record now before us, we are unable tofind such [*16] support.

The statutory transcript contains the Tax Commissioner's audit work papers that does demonstrate that Advantagehad employees stationed at Yoder both prior to and after the effective date of R.C. 5739.01(JJ)(3). However, some ofthese employees only remained a short time after the implementation of the statotory provision. It appears that otheremployees began working for Yoder during the period covered by the contract but may have only worked a short time.Others did not begin working until the end of the refund period. It also appears that the total number of employees as-signed to Yoder varied considerably at different times throughout the period. (See S.T. 56-67.)

We recognize that there are those positions which, by their nature, are susceptible to a&equent tucnover in person-nel. They may be difficult to staffinitialiy. Once hired, employees may soon discover that the job is not right for them,or they may fmd a better position elsewhere. Employers may also conclude that a new employee is not working out inthe position and decide to let the person go. Consequently, a high tumover rate does not, in itself, prevent a finding thatthe employees were nevertheless permanent. [* 17] It is axiomatic that, unless otherwise agreed, either party to anemployment-at-will agreement may terminate the relationship at any time for any reason not contrary to law. Mers v.Dispatch Printing Co. (1985), 19 Ohio St.3d 100, at paragraph one of the syllabus; Henkel v. Educational ResearchCouncil (1976), 45 Ohio St.2d 249, at the syllabus. See, also, LaFrance v. Internatl. Brotherhood (1923), 108 Ohio St.61. In this particular case, however, the fluctuations in the number of employees assigned raises important questionsabout the nature of their placement. Because this matter concems a refund claim, Advantage's burden is not limited tothe mere assertion that it is within the statutory exclusion; it must affirmatively demonstrate that such ongoing positionsdid exist and that they were filled with the expectation the employee would be placed there permanently. Without addi-tional evidence on Advantage's behalf, we find no basis upon which to disturb the Commissioner's findings. CompareExcel Temporaries, Inc., supra (wherein con•oborating evidence was presented to establish that employees were penna-nently placed under a contract which specified the permanent [* 18] nature of the placement).

To conclude, we fmd that Advantage has failed to prove, by competent and probative evidence, that the Commis-sioner's fmal determination is unreasonable or unlawful. We thus fmd that Advantage has not overcome the presump-tion in favor of the Tax Commissioner and that the Commissioner's final determination is, by a preponderance of theevidence, correct as a matter of law. It is therefore the decision and order of the Board of Tax Appeals that the TaxCommissioner's final determination must be, and the same hereby is, affirmed.

Julia M. Snow, Board Secretary

Appx. 5

Excel Temporaries, Inc., Appellant, vs. Roger W. Tracy, Tax Commis-sioner of Ohio, Appellee.

CASE NO. 97-T-257 (SALES TAX REFUND)

STATE OF OHIO -- BOARD OF TAX APPEALS

1998 Ohio Tax LEXIS 1383

October 30, 1998, Entered

COUNSEL:

[*1]APPEARANCES:

For the Appellant - Karen H. Penley, Chester, Willcox & Saxbe LLP, 17 South High Street, Suite 900, Columbus,Ohio 43215-3413.

For the Appellee - Betty D. Montgomery, Attorney General of Ohio, By: Duane M. White, Assistant Attomey gen-eral, State Office Tower, 16th Floor, 30 East Broad Street, Columbus, Ohio 43215.

OPINION:

DECISION AND ORDER

Mr. Johnson, Ms. Jackson and Mr. Manoranjan concur.

This matter is before the Board of Tax Appeals pursuant to a notice of appeal filed under date of March 6, 1997, byappellant, Excel Temporaries, hic. Excel appeals from a final determination of the Tax Commissioner, which was is-sued on January 31, 1997. Therein, the Commissioner denied Excel's claim for a refund of sales tax remitted on em-ployment service transactions made from July 1, 1993, through Febmary 23, 1996. The $ 63,949.48 claim concernstransactions with one of Excel's clients, Webb Truss Company, to which Excel had provided personnel. The Commis-sioner denied the claim for two reasons. First, he concluded that any contract for the provision of personnel had to be inwriting. Second, he concluded that Excel had failed to prove that its oral contract met the requirements of [*2] R.C.5739.01 (JJ) (3). Specifically, the Commissioner ruled that Excel had not shown that the personnel in question weresupplied pursuant to a contract of at least one year or that the personnel in question were supplied on a permanent basis.

The Board of Tax Appeals now considers this matter upon the notice of appeal, the statutory transcript certified tothe Board by the Tax Commissioner, the briefs of the parties, and the record of the evidentiary hearing. Both partieswere represented by counsel at the hearing. Excel introduced the testimony of Jonathan Boyd and Lamar DeLaney, bothof Webb Truss Company, Glen Woods of Excel, and Wayne Cooper, a Certified Public Accountant, to support Excel'scontentions of error. The Attomey General offered no additional evidence but moved the Board to affirm the Commis-sioner upon the record.

Excel is an Ohio corporation engaged in supplying personnel ta businesses in Ohio and Indiana. At issue in thismatter is Excel's placement of personnel with one of'tts clients, Webb Truss Company. Beginning in January 1993, R.C.5739.01 was amended to include employment services as a taxable sale. R.C. 5739.01 (B) (3) (k). Under this provision,Excel began [*3] to include and collect sales tax on all employment transactions with Webb Truss. Effective July 1,1993, however, the definition of employment services was amended by the 120th General Assembly to exclude certainsituations. 145 v H 152, eff. 7-1-93. As amended, R.C. 5739.01 (JJ) provides:

"(JJ)'Employment service' means providing or supplying personnel, on a temporary or long-termbasis, to perform work or labor under the supervision or control of another, when the personnel so sup-plied receive their wages, salary, or other compensation from the provider of the service. 'Employmentservice' does not include: * * *

Appx. 6

"(3) Supplying personnel to a purchaser pursuant to a contract of at least one year between the ser-vice provider and the purchaser that specifies that each employee covered under the contract is assignedon a permanent basis."

Excel asserts that, during the period in question, it provided personnel on a permanent basis to Webb Truss under acontract of at least one year. In denying Excel's claim, the Commissioner determined that Excel had "not proffered anydocumentation tending to prove its oral contract meets the requirements of the exception, specifically that the [*4]personnel are supplied pursuant to a contract of at least one year between the service provider and the purchaser, andthat each employee covered is assigned to the purchaser on a permanent basis." (S.T. 2.)

Before proceeding to review whether Excel's provision of personnel meets the exclusion contained within R.C.5739.01 (JJ) (3), we must address an evidentiary matter raised by the Tax Commissioner. The Commissioner assertsthat we may not look to the testimonial evidence submitted by Excel in determining whether the terms of the statutehave been met. The Commissioner points out that R.C. 5739.01 (JJ) (3) expressly requires a contract of at least one yearand that the contract "specify" that each employee is assigned on a permanent basis. As a result, the Commissioner in-sists that the contract is govemed by the Statute of Frauds provisions found in R.C. 1335.05, meaning that only writtencontracts are acceptable as evidence of the exception.

Generally, in determining whether an exception or exemption to taxation applies, it is not just the form of a contractthat is important. histead, the crucial inquiry becomes a determination of what the seller is providing and of what the[*5] purchaser is paying for in their agreement. Twentieth Century-Fox Film Corp. v. Lindley (1982), 2 Ohio St.3d 54,at 55. Recently, in Stein, hic. v. Tracy (Nov. 7, 1997), BTA No. 92-T-1388, unreported, on appeal, Sup.Ct. No.97-2520, we reaffirmed this rule, stating that "in addressing the question of whether [an] exception applies, what actu-ally is being done by the parties involved is relevant." Id. 34. nl

nl But see Hume v. Limbach (Nov. 23, 1993), BTA No. 88-F-207, unreported, rev'd on other grounds(1991), 61 Ohio Sz3d 387 (Where a contract is clear and unambiguous, it should be interpreted by its termsalone).

This rule is suitable to taxation cases because most exceptions and exemptions are either granted or denied basedupon the specifics of the transaction itself, not upon the specifics of a contract. In this particular case, however, theGeneral Assembly took an additional step in defining what constitutes an employment service. Rather than simplynaming a type of transaction that would be excluded from the defmition, the General Assembly also required that thecircumstances of the transaction be specified in "a contract of at least one year."

We [*6] are mindful of the Supreme Court's admonition that the General Assembly must be presumed to meanwhat it says. State ex rel. Foster v. Evatt (1944), 144 Ohio St. 105; Slinqluff v. Weaver (1902), 66 Ohio St. 621. Thus, indetermining the applicability of an exception or exemption from taxation, we "should always give language contained ina statute involving taxation its plain and ordinary meaning." Dayton Press, Inc. v. Lindley (1986), 22 Ohio St.3d 112, at114.See, also, Youngstown Club v. Porterfield (1970), 21 Ohio St2d 83, at 86. In the instant matter, the General As-sembly chose to use the term "at least one year" when referring to the length of the contract. Thus, the Commissionercontends that we may only consider evidence that is part o€a written contract.

Central to the Conunissioner's position is his contention that only a valid, enforceable contract may be consideredby this Board in connection with Excel's refund claim. With this, we are in congruity. However, the Commissioner fur-ther contends that the General Assembly's choice to include the term "at least one year" places the employment contractwithin the Statue of Frauds, thereby making only written [*7] contracts valid and enforceable. Under this analysis, anoral contract may not be relied upon by Excel because such contract is void. We disagree.

The Statute of Frauds is not a rule of law but a rule of evidence. Minns v. Morse (1846) 15 Ohio 568. And see

Crawford v. Edison (1887), 45 Ohio St. 239, 245 ("object of the statute [of frauds] undoubtedly was, to secure the high-est and most satisfactory species of evidence"). Consequently, the statute does not make an oral contract absolutelyvoid. Lefferson v. Dallas (1870), 20 Ohio St. 68 at 74. Instead, the statute simply makes an oral contract voidable at thewill of one of the parties to such a contract. Ohio Courts have held that third persons and strangers to a contract, such asthe Tax Commissioner in this instance, are generally precluded from asserting the defense of the Statute of Frauds. Id.;Leibovitz v. Central Nat. Bank (1944), 75 Ohio App. 25. Even a party's ability to avoid a contract under the Statute ofFrauds is tempered by the "considerations of equity, good faith, and moral obligation which may arise from the parol

contract." Lefferson, supra.

Appx. 7

Williston has written that "* ** only the enforceability, [*8] not the validity, of a bargain depends upon the sat-isfaction of the statute [of frauds]. It is even said that the only effect of the statute is to require certain evidence in orderto prove the bargain." Williston on Contracts (Rev. Ed.), 1517, Section 527. This rule has been expressly adopted in

Ohio. In re Estate of Weber (1960), 170 Ohio St. 567 at 572; See, also, Minns and Lefferson, supra; Heaton v. Eldrige

& Higgins (1897), 56 Ohio St. 87.

As the foregoing indicates, an oral contract may be considered valid for purposes of R.C. 5739.01 (JJ) (3), eventhough it must be of "at least one year" in duration. n2 Although the oral contract may be relied upon, this does notmean that parol evidence may in itself be sufficient in all cases to pr.pve that the taxpayer's assignment of personnel isexcluded from the defmition of an employment service. Corroborating evidence may be necessary to establish that suchcontract exists and that performance under the contract meets the requirements contained within R.C. 5739.01 (JJ) (3).

n2 Excel has also argued that the Commissioner should be estopped from requiring a written agreement be-cause of representations the Commissioner has made through information releases concerning R.C. 5739.01 (JJ)(3). Because we find that Excel is not barred from relying upon parol agreements, we need not address this ar-

gument. But see Recording Devices v. Bowers (1963), 174 Ohio St. 518; Sekerak v. Fairhill Mental Health Ctr.

(1986), 25 Ohio St.3d 38; and Loveland Park Baptist Church v. Kinney (May 25, 1983), Warren App. No. 126,unreported. (estoppel generally does not apply against the state, even where state employees make misleading or

confusing statements)

[*9]In addition, our determinarion does not provide that a written contract is unnecessary under R.C. 5739.01 (JJ) (3) in

every circumstance. Where the taxpayer has reduced its agreement to writing, that taxpayer may not rely upon parolevidence to amplify the terms of the written contract: "Where the parties following negotiation make mutual promiseswhich thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract aconstruction other than that which the plain language of the contract provides." Aultman Hosp. Assn. v. Community Mut.

Ins. Co. (1989), 46 Ohio St.3d 51, at the syllabus. Intentions that are not expressed in the writing are deemed to not existand may not be demonstrated by parol evidence. Aultman at 53. See, also, Charles A. Burton, Inc. v. Durkee (1952),

158 Ohio St. 313, at paragraph two of the syllabus; Steel Sanitary Co. v. Pangborn Corp. (1930), 38 Ohio App. 65, at70; and Hume, supra.

In addition to his Statute of Frauds argument, the Commissioner contends that R.C. 5739.01 (JJ)'s reference to acontract that "specifies" that personnel are on permanent assignment requires a written contract. [* 10] This view,however, is inconsistent with the definition of a contract:

"In its legal sense, the word'contract' includes every description of agreement or obligation, whetherverbal or written, whereby one party becomes bound to another to pay a sum of money or to perform oroniit to do a certain act."

Terex Corp. v. Grim Welding Co. (1989), 58 Ohio App. 3d 80, at 82. By its very definition, a contract, whether oral orwritten, requires specificity; the parties have communicated, in some manner, the terms to which they agree to bebound.

Where a taxpayer relies upon an oral contract to claim an exception under R.C. 5739.01 (JJ) (3) it is still necessaryfor that taxpayer to come forward with more than the mere assertion that personnel were assigned permanently. Whilecorroboration of the contract terms may be necessitated, however, the specificity requirement of R.C. 5739.01 (JJ) (3)does not limit consideration to only a contract that has been reduced to writing.

Neither do we fmd the Commissioner's reliance upon Queen City Valves, Inc. v. Peck (1954), 161 Ohio St. 579, and

Kern v. Tracy (1995), 72 Ohio St.3d 347, to be persuasive. Those cases concern the requirement [* 11 ] that a partyspecify errors in a notice of appeal to this Board. This matter does not concem a notice of appeal. We therefore find thecases to be inapposite.

We shall now proceed to consider the merits of Excel's contentions of error. In so doing, we observe that the fmd-ings of the Tax Commissioner are presumptively valid. Consequently, it is incumbent upon a taxpayer challenging adetermination of the Tax Commissioner to rebut that presumption. Afcan Aluminum Corp. v. Limbach (1989), 42 Ohio

Appx. 8

St.3d 121. When no competent and/or probative evidence is developed and properly presented to the Board to establishthat the Tax Commissioner's determination is "clearly unreasonable or unlawful," the determination is presumed to becorrect. Id. We also emphasize that exceptions and exemptions to taxation are to be strictly construed in favor of taxa-tion, and the burden rests upon the taxpayer to affirmatively establish its right thereto. National Tube Co. v. Glander

(1945), 157 Ohio St. 407. See, also, Frankelite Co. v. Lindley (1986), 28 Ohio St.3d 29.

The exclusion to employment services found in R.C. 5739.01 (JJ) (3) has two basic elements. First, the contractmust specify [* 121 that each employee will be assigned on a pemianent basis. Second, assignments must be accom-plished pursuant to a contract of at least one year between the provider and the purchaser. We shall examine each ofthese elements, in turn, to determine whether Excel's provision of personnel qualifies for the exclusion to the defmitionof employment services.

PERMANENT BASIS

In considering whether Excel provided Webb Truss with employees on a permanent basis, we reiterate that it isnecessary for the taxpayer seeking the exception to come forward with evidence to corroborate its claim that the con-tract specifies that the employees in question be assigned on a permanent basis. We are also mindful that any referenceto permanent assigument is still subject to performance. Excel seeks a refund on services it claims have been performedin accordance with the terms of an oral contract. However, in claiming a refund, Excel must be prepared to support itsassertion that each of its employees was indeed assigned on a permanent basis. Here, Excel has provided the testimonyof John Boyd, Webb Truss' controller, and of Lamar DeLaney, former president of Webb Truss.

Both Mr. Boyd and Mr. DeLaney [* 13] testified that Webb Truss has experienced difficulty in fmding personnelto fill permanent positions. In part, this was due to the location of the company. Mr. DeLaney pointed out that WebbTruss is located in a rural area, where the employment pool for skilled workers is limited. Additionally, both Mr. Boydand Mr. Delaney testified that turnover in these positions was high due, in part, to the type of work involved.

The witnesses testified that Webb Truss did not have the resources to continue to find and hire new personnel on itsown. Consequently, Webb Tross entered into a contract with Excel, in which Excel agreed to supply permanent em-ployees to Webb Truss. Webb Truss believed Excel would be better able to fmd qualified personnel because Excel hadaccess to a larger labor pool.

Both Mr. Boyd and Mr. DeLaney testified that the Excel employees were not to be reassigned to another positionby Excel, nor was there the expectation that any Excel employee would be there for either a limited time or until theconclusion of a specific project. One reason for wanting permanent employees was the nature of the positions beingfilled. Excel was to provide employees to fill clerical, sawer, [*14] tailor, builder, and yard positions. Builders arethose who actually set up and assemble roof or floor trusses. Clerical personnel are responsible for invoicing, data entry,and answering the phones. Yard personnel bring lumber to Webb Truss' saws, load trucks, and maintain the area. Sawpersonnel actually cut the lumber. Mr. Boyd testified that the nature of the work requires a lengthy training period.Training may include leatning to read and use engineering drawings, learning to properly use the saws and otherequipment, and instruction on how to lay out the materials to properly construct the trusses. Training, according to Mr.Boyd, is expensive and takes time. Consequently, Webb Truss was only interested in permanent employees.

Mr. Boyd further testified that turnover was very high. For the thirty to forty positions which Webb Truss neededstaffed, he estimated Excel had supplied approximately 300 employees between 1992 and 1996. Both he and Mr.DeLaney stressed that this number was due to the difficulties in keeping employees rather than any intent to hire only

temporary personnel.

Finally, we note that Mr. Boyd was himself originally brought to Webb Truss through Excel. Mr. [* 15] Boyd'sunderstanding was that his placement with the company was to be permanent in nature. He was not to be assigned toany other Excel customer. After a passage of time, Webb Truss decided to hire Mr. Boyd as its controller. He then quithis position with Excel to take the new job. Approximately fifteen former Excel employees still work for Webb Truss.

At the evidentiary hearing, the Commissioner implied that the large turnover experienced by Webb Truss was anindication that the positions were, in reality, not permanent. Some of the personnel were either fired or quit after a day,week, or month. We recognize, however, that there are those positions which, by their nature, are susceptible to a fre-quent tumover in personnel. They may be difficult to staff initially. Once hired, employees may soon discover that thejob is not right for them, or they may find a better position elsewhere. Employers may also conclude that a new em-ployee is not working out in the position and decide to let the person go.

Appx. 9

In addition, the personnel in issue were hired by Excel on an "at will" basis. The employees were supplied to WebbTruss in the same manner. It is axiomatic that, unless otherwise agreed, [* 16] either party to an employment-at-willagreement may terminate the relationship at any time for any reason not contrary to law. Mers v. Dispatch Printing Co.

(1985), 19 Ohio St.3d 100, at paragraph one of the syllabus; Henkel v. Educational Research Council (1976), 45 Ohio

St.2d 249, at the syllabus. See, also, LaFrance v. Internatl. Brotherhood (1923), 108 Ohio St. 61. Termination does not

determine whether the employee was engaged on a permanent basis. It is the intent of the parties which is controlting.

We fmd Excel has demonstrated by competent and probative evidence that it did place personnel with Webb Trusson a permanent basis. The record indicates that Excel provided staff with the expectation that they remain with WebbTruss. Likewise, Webb Truss had the expectation that the personnel sent to it would remain with the company. Thepermanency of the placement was clearly understood by Excel, Webb Truss, and, as indicated by Mr. Boyd (a formerExcel employee), by the individual employees.

While it is necessary for a taxpayer to demonstrate that the employees in question were permanently placed with aclient, R.C. 5739.01 (JJ) (3) further requires that the contract [* 17] itself specify that the personnel are to be perma-nently placed. A demonstration of permanent placement is strong, corroborating evidence that the agreement was forpermanent personnel, and we give this evidence great weight. However, we recognize that such evidence may not itselfbe sufficient to demonstrate the specific terms of the contract. In the instant matter, officials of both Excel and WebbTruss have appeared before this Board and testified as to the contract between them. These officials, all credible wit-nesses, have established that the parties specifically agreed that the personnel to be provided would be assigned to spe-cific positions on a permanent basis. Accordingly, we find that Excel has corroborated, by credible and probative evi-dence, that the oral contract in question specifies that each employee covered thereby would be assigned to Webb Trusson a permanent basis. We therefore find that Excel has met the first element of R.C. 5739.01 (JJ) (3). n3

n3 But see Advantage Services, Inc. v. Tracy, BTA No. 95-T-1391, announced this date, for a discussion ofa situation where such corroborating evidence is absent.

CONTRACT FOR AT LEAST ONE YEAR

The testimony [* 18] before the Board indicates that Excel and Webb Truss entered into an oral contract in early1992. Therein, Excel agreed to supply Webb Truss with permanent personnel. Both Mr. DeLaney and Mr. Woods testi-fied that they met several times to discuss Webb Truss' needs before deciding that Excel would handle all placement ofWebb Truss' employees. The initial contract did not specify any length of time. Both Mr. Woods and Mr. DeLaneyconcurred that the contract was for an "ongoing" basis, i.e., they would continue the contract as long as Webb Truss hada need for employees and as long as Excel could continue to satisfactorily supply the requested personnel. Both wit-nesses indicated that, although there was no definite time frame discussed, the relationship was intended to be longterm.

Representatives of Excel and Webb Truss would meet weekly to discuss which positions needed to be staffed andto evaluate how the overall relationship was progressing. The parties continued to rely upon oral contracts for the staff-ing needs. hi February 1996, the parties entered into their first written contract for the provision of personnel. (Appel-lant's Exhibit 7.) That contract became effective on [* 19] February 24, 1996. n4

n4 No transactions made under the written contract are here in issue. The claimed refund period ends theday prior to the effective date of the contract, i.e., February 23, 1996.

Excel asserts that the ongoing nature of the oral contract, combined with the fact that the parties had continued theagreement for four years, establishes that there is a contract of at least a year, as required by R.C. 5739.01 (JJ) (3). TheCommissioner countered that there was no oral contract between Excel and Webb Truss. AlternativeIy, the Commis-sioner asserts that any potential contract was not for at least a year.

Initially, we observe that the Commissioner did not dispute the existence of the oral contract in his fmaI determina-tion. Instead, he denied the refund because the "oral contract" failed to meet the requirements of the statute. (S.T. 2) TheCommissioner now argues that there is no oral contract because there was no consideration: "While Excel promised tomeet Webb Truss' personnel staffmg requirements, Webb Truss made no binding promise to Excel to do or forebearfrom doing anything. * * * there was no commitment to use Excel's personnel staffing services for [*20] any particular

Appx. 10

length of time and that it was understood that if Excel failed to meet Webb Truss' stafling requirements, Webb Trasscould look elsewhere to fulfill those requirements." (Appellee's Brief, 10.)

From our review of the testimony, we must conclude that Excel and Webb Truss had an oral contract beginning inearly 1992. Consideration is present. Excel agreed to supply Web Truss with personnel as needed. In exchange, WebbTruss agreed to pay Excel for this service. Manifestly, we decline to accept the Commissioner's position.

Having found a contract, we must now determine whether it meets the statutory requirement that it be at least oneyear in lengt.. Excel contends that it does, poi.,,ring to the fonr year relationship between Excel and Webb Truss. Excel

also refers to a March 13, 1996, Ietter from Mr. DeLaney to Mr. Woods. The first paragraph of this letter reads:

"The verbal agreement that we have had with you since the inception of our relationship some fouryears ago was that you would fill our positions as needed on a permanent basis. This verbal agreementwas always renewed each year for a period of a year and a day unless suspended at that time by eitherparty." [*21] (Appellant's Exhibit 9.)

Upon review, we do not fmd that the oral contract was for at least one year. We begin with the testimony elicitedfrom Mr. DeLaney of Webb Truss by our Examiner:

"Q. LePs jump back to March of 1992 when you entered into this agreement with Excel for the first time.I believe you stated before that when you entered into the agreement, it was your understanding that thisagreement was going to be on an ongoing period of time, unless something were to happen that wouldmake you unsatisfied; was that correct?

"A. That's correct.

"Q. Was there ever an understanding as to a time period in which the agreement would last?

"A. No.

"Q. Was there ever -- so you never discussed a minimum time length for the agreement?

"A. No.

"Q. Let's jump ahead to 1993. Was the same understanding in place or did that change?

1,***

"A. No. nothing changed.

"Q. 1993, did you have any arrangements as to the length of time in which the agreement was to expand

[sic]?

"A. Not that I recall.

"Q. There was no maximum time for that agreement?

"A. No.

"Q. There was no minimum amount of time for that agreement?"

"A. Right.

"Q. 1994, was there a maximum amount [*22] of time for the agreement?

"A. No. I don't think so.

Appx. 11

"Q. No minimum amount of time either?

"A. Uhm-hum.

"Q. So the original agreement back in March 1992 just simply continued on as long as you two were sat-isfied?

"A. Right, yeah." (R. 101-102.)

Other testimony offered by Mr. Delaney further indicates that the parties did not enter into a contract which wasintended to be a year in length. This testimony was mirrored by Mr. Woods. There was no minimum contract length;there was no maximum. Instead, Excel and Webb Truss entered into a contract which was terminable at any time byeither party. While the parties may have believed the relationship would be long-term, there is nothing in the contract tosuggest that the contract was for at least a year. The most Excel can claim is that the contract was not likely to be per-formed within a year; nevertheless, final performance of the contract could still occur within that time. Webb Trusscould have been dissatisfied with Excel's staffing and terminated the agreement. Either party had the authority to termi-nate the relationship at any time for any reason. In short, there was nothing in the oral contract which fixed its termsbeyond [*23] one year. See Randall v. Turner (1867), 17 Ohio St. 262, 270. See, also, Ford v. Tandy Transp., Inc.(1993), 86 Ohio App.3d 364, 382 (holding that a promise which is not likely to be performed within one year, andwhich is actually not performed within a year, is nevertheless not within the Statute of Frauds if, at the time the contractwas made, there is a possibility that full per€ormance could occur before the expiration of one year); and Robnolite v.Kohart (1947), Ohio App. 1, at paragraph one of the syllabus. And see Williston on Contracts (3Ed. 1960), Section 495.

Neither do we find Excel's reliance upon Mr. DeLaney's March 13, 1996, letter to be persuasive. Although the letterstates that the oral contract was "always renewed each year for a period of a year and a day," Mr. DeLaney's own testi-mony about this letter suggests otherwise:

"Q. Would you take a look at Exhibit No. 9 for me, Mr. DeLaney.

"A. Uh-huh.

^1**«

"Q. Now, that statement in Exhibit No. 9, is that -- what is your understanding of this statement?

"A. That it could be for any time really.

"Q. Does that particular statement agree with your prior statements as to there being no specific [*24]time length in your verbal contracts?

"A. Well, I don't -- I don't really think so. ***

"Q. So, in your opinion is that more accurate, that you had an agreement, a verbal agreement, that lasteda year and a day or that you had a verbal agreement that was simply ongoing as long as the two partieswere satisfied?

"A. I think it was ongoing." (R. 103.)

We fmd Mr. DeLaney's testimony to be credible, and further conclude that his testimony, along with that of Mr.Woods, discloses no intent to make an oral contract which was at least one year in its term. Additionally, Mr. DeLaneytestified that he did not personally prepare the letter in question. (R. 104.) Thus, we are reluctant to find that the letterreflects an intent other than that expressed by the witnesses before us.

Appx. 12

Upon review of the foregoing, we are unable to find that the oral contract between Excel and Webb Truss was for atleast a year, or for any other stated period of time. Consequently, we must conclude that Excel has failed to meet thesecond element of R.C. 5739.01 (JJ) (3).

CONCLUSION

In sum, we fmd Excel has not proven, by competent and probative evidence, that it qualifies for the exclusion toemployment [*25] services contained within R.C. 5739.01 (JJ) (3). Consequently, Excel has not overcome the pre-sumption in favor of the Tax Commissioner, and we find that the Commissioner's denial of the refund claim is, by apreponderance of the evidence, correct as a matter of law. It is therefore the decision and order of the Board of Tax Ap-peals that the Tax Commissioner's final determination must be, and the same hereby is, affirmed.

Julia M. Snow, Board Secretaiy

Appx. 13

J.Z.E. Electric, Inc., Appellant, vs. William W. Wilkins, Tax Commission-er of Ohio, Appellee.

CASE NO. 2006-A-2218 (USE TAX)

STATE OF OHIO -- BOARD OF TAX APPEALS

2009 Ohio Tax LEXIS 800

May 19, 2009, Entered

COUNSEL:[*I] APPEARANCES:

For the Appellant - Calfee, Halter & Griswold LLP, James F. Lang

For the Appellee - Richard Cordray, Attorney General of Ohio, Sophia Hussain, Assistant Attorney General

OPINION:

DECISION AND ORDER

Ms. Margulies, Mr. Johrendt, and Mr. Dunlap concur.

The Board of Tax Appeals considers this matter pursuant to a notice of appeal filed by J.Z.E. Electric, Inc. J.Z.E.appeals from a final determination of the Tax Commissioner, in which the commissioner affirmed, with modification, ause tax assessment previously issued against J.Z.E. on purchases made during the period of July 1, 2001 through June30,2004.

J.Z.E. specifies that the commissioner erred in assessing use tax on J.Z.E.'s purchase of employment services. Be-cause we conclude that J.Z.E. has failed to show by competent and probative evidence that it either has remitted the taxin question or qualifies for an exception under R. C. 5739.01(JJ)(3), we affirm the commissioner.

J.Z.E. is an electrical contractor operated under the trade name of Hilliard Electric. During the period in question,J.Z.E. purchased employment services from Tradesmen International Inc. ("Tradesmen") and Construction Labor Con-tractors ("CLC"), as well [*2] as temporary employment services by Clock Electric. Richard Marconi, controller forJ.Z.E., testified before this board concerning the transactions involving the foregoing companies, indicating that J.Z.E.'smany projects were staffed with nat only its core group of electricians, which were J.Z.E.'s own employees, but alsosupplemented with "leased" employees from Tradesmen and CLC. H.R. at 14. He expounded further that the leasedemployees were hired for different purposes and were divided into two categories: leased workers and temporary work-ers. He explained that J.Z.E. planned to keep the leased workers indefinitely, while the temporary workers were used byJ.Z.E. for a limited duration only. H.R. at 15, 57. The "leased" electricians would turn in their time cards to CLC andTradesmen, who would then invoice J.Z.E. for their time. H.R. at 22.

With regard to the provision of workers by Clock Electric to J.Z.E., Mr. Marconi indicated that the arrangementwas conceived simply as a favor to Clock, as agreed to by each company's officers. H.R. at 37. Since Clock did not haveenough business to keep all of its employees busy, J.Z.E. agreed to use/borrow Clock employees and compensate [*3]Clock for the cost of the employees. H.R. at 35.

RC. 5739.01(JJ) defines "employment service" as "providing or supplying personnel, on a temporary or long-termbasis, to perform work or labor under the supervision or control of another, when the personnel so supplied receive theirwages, salary, or other compensation from the provider of the service." R. C. 5739.01(JJ)(3) provides that "employmentservice" does not include "[s]upplying personnel to a purchaser pursuant to a contract of at least one year between theservice provider and the purchaser that specifies that each employee covered under the contract is assigned to the pur-chaser on a permanent basis." Thus, to be excluded from taxation under R.C. 5739.01(JJ)(3), J.Z.E. must prove twoelements: (1) there is a contract of at least one year between the service provider and the purchaser, and (2) the contract

Appx. 14

2009 Ohio Tax LEXIS 800, *Page 2

specifies that each employee covered under the contract is assigned to the purchaser on a permanent basis. See KROptions, Inc. v. Zaino, 100 Ohio St.3d 373, 2004 Ohio 1, at P18, 800 XE.2d 740, motion for clarification granted, 102Ohio St.3d 1214, 2004 Ohio 2085, 807 N.E.2d 363.

J.Z.E. argues that [*4] its transactions with CLC and Tradesmen qualify for the statutory exclusion to the afore-mentioned definition, i.e., R.C. 5739.01(JJ)(3). With regard to the labor supplied by Clock Electric, the conunissionerclaims that it meets the definition of "employment service," and as such, should be taxed; however, J.Z.E. claims thatthe payments it made to Clock were not "sales," as defmed in R C. 5739.01(B), and even if they were sales, they wouldbe exempt as casual sales, pursuant to R.C. 5739.02(B)(8).

In reviewing J.Z.E.'s specifications of error, we observe that the findings of the Tax Conunissioner are presump-tively valid. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio St.3d 121, 537 XE.2d 1302. Consequently, it is in-cumbent upon a taxpayer challenging a determination of the commissioner to rebut the presumption and to establish aclear right to the requested relief. Belgrade Gardens v. Kosydar (1974), 38 Ohio St.2d 135, 311 N.E.2d 1; MidwestTransfer Co. v. Porterfeld (1968), 13 Ohio St.2d 138, 235 N.E.2d 571. In this regard, the taxpayer is assigned the bur-den of showing in what manner and to what extent the conunissioner's determination is in error. [*5] Federated Dept.Stores, Inc. v. Lindley (1983), 5 Ohio St. 3d 213, 5 Ohio B. 455, 450 NE.2d 687. Additionally, all sales of tangible per-sonal property within Ohio are presumed to be subject to tax until shown otherwise. We emphasize that exceptions andexemptions to taxation are to be strictly construed in favor of taxation, and the burden rests with the taxpayer to affirm-atively establish its right thereto. National Tube Co. v. Glander (1945), 157 Ohio St. 407, 105 N.E.2d 648. See, also,Frankelite Co. v. Lindley (1986), 28 Ohio St.3d 29, 28 Ohio B. 90, 502 XE.2d 213. nl

nl J.Z.E.'s specifications of error relate to the assessment of use tax. R. C. 5739.02 levies a sales tax upon all re-tail sales made in Ohio. A similar use tax is imposed by R.C. 5741.02. If a transaction is not subject to sales tax,it follows that the hansaction, if made within Ohio, is also not subject to use tax. R.C. 5741.02(C). Since ouranalysis of the relevant sales and use tax provisions is essentially identical in the context of this appeal, we shallrefer only to the applicable sales tax provisions, unless circumstances require otherwise.

J.Z.E. points to the terms included in its two contracts [*6] with CLC and Tradesmen as support for its positionthat it qualifies for the exclusion from the use tax in question. S.T. at 118-122. Specifically, the first requirement forexclusion from the definition of "employment service" is that there is a contract of at least one year between the serviceprovider and the purchaser. Both of the subject contracts were provided to the commissioner and are ongoing in nature,i.e., still in effect at the time they were provided and testified to before this board. Both contracts indicate that each ofthe companies will provide personnel to J.Z.E. "for a period of not less than one year." S.T. at 118, 121. Further, thecommissioner acknowledged that the contracts state "they are for a period of at least one year." S.T. at 1. Thus, we fmdthat the first prong of the requirements for exclusion from the defmition has clearly been met.

With regard to the second prong, the contracts must specify that each employee covered under the contract is as-signed to the purchaser on a permanent basis. The contracts under consideration simply state that the workers are pro-vided "on an indefinite basis as opposed to a temporary or short-term basis." They do not [*7] identify the workers byname, nor do they identify the type of work to be completed. S.T. at 118, 121. The Supreme Court, in H.R. Options,

supra, stated that:

"We start with the understanding that an employee assigned on a pennanent basis need not be assigned toan employer forever. We believe that in the context of R. C. 5739.0](JJ)(3), assigning an employee on apermanent basis means assigning an employee to a position for an indefinite period, i.e., the employee'scontract does not specify an ending date and the employee is not being provided either as a substitute fora current employee who is on leave or to meet seasonal or short-term workload conditions. Thus, boththe contract and the facts and circumstances of the employee's assignment are factors that must be re-viewed to determine whether the employee is being assigned on a permanent basis.

"When the Tax Commissioner's agents examine an employment contract, they must be able to determineat that time whether an employee has been assigned on a permanent basis. The contract, along with thefacts and circumstances of the assignment, should permit the Tax Commissioner s agent to determinepermanency." [*8] Id at P 21, 22.

Appx.l5

2009 Ohio Tax LEXIS 800, *Page 3

hi reviewing J.Z.E.'s contracts with Tradesmen and CLC, there are no starting/ending dates listed for the workersthat will be provided to J.Z.E. Further, no individual employees are named and no individual employee contracts weresubmitted for our review, nor does it appear that such contracts were made available to the commissioner during hisaudit. In addition, according to Mr. Marconi's testimony, it appears that all workers used, whether deemedleased/permanent or temporary in nature, were hired under the same contract. H.R. at 15. Clearly, from the face of thecontracts, there was no way to determine which type of employee, i.e., leased/permanent or temporary was being sup-plied. Even after a review of work records, Mr. Marconi could not make any conclusions about the category in whicheaeh warkerr Sho-ulu' bc piaeeu. Tllus, iJ`u. Pv"Larconi was fvrceu to asK tJ'ie opcrativns r,an ager iu identi:y i;WI':ich categ^veyeach of the leased employees belonged in, based upon the manager's recollection of how each worker was, in fact, used.H.R. at 30, 35. See, also, Exs. A-C.

In consideration of the foregoing, this board is unwilling to rely upon hearsay statements to establish which [*9]employees were leased/permanent and which were temporary. J.Z.E.'s contracts for employment services clearly do notset forth on their face the two categories of workers to be leased. Further, its own records do not clearly delineate, fromthe outset, the nature of an employee's assignment, whether it be pennanent or temporary. There is nothing in the con-tracts or J.Z.E.'s work records to defmitively indicate whether a worker hired under such contracts was intended to workas a long termlpermanent worker or a temporary worker and, ultimately, we are unable to accept an ambiguity in therecord that fails to corroborate for us the precise nature of each employee's assignment. J.Z.E.'s burden is not limited tothe mere assertion that it is within the statutory exclusion; it must affirmatively demonstrate that each employee in ques-tion was placed with J.Z.E. permanently. Advantage Services, Inc. v. Tracy (Oct. 30, 1998), BTA No. 1995-T-1391,1998 Ohio Tax LEXIS 1382, unreported, at 14. J.Z.E. has failed to meet this burden.

Finally, with regard to the employees provided by Clock Electric, we note that there is no written agreement delin-eating the arrangement between ClockElectric and J.Z.E. As such, based upon [* 10] the record before us, we find thatthe activity undertaken by Clock meets the defmitional requirements of an employment service, i.e., supplying person-nel on a temporary basis to perform work under the supervision of another while receiving wages from the provider ofthe service, i.e., Clock. Further, the record does not support Clock's exclusion from the employment service definitionsince we do not know the duration of Clock's agreement with J.Z.E. Even if Clock's agreement with J.Z.E. was found tobe at least one year in duration, arguably, it appears from the nature of such agreement that it was intended to be tem-porary from the outset: to provide workers to J.Z.E. while its own workload was reduced, simply to keep its workforceemployed continuously. Thus, regardless of how the parties viewed their arrangement or their ultimate intent upon en-tering into the aggeement, based upon the record before us, we find Clock provided workers to J.Z.E. pursuant to anemployment services agreement, on a temporary basis only.

In summary, we fmd that J.Z.E. has failed to prove by competent and probative evidence that the commissioner'sfinal determination was in error. We fiuther find that, [* I 1] upon review, the commissioner's determination wassupported by a preponderance of the record and was in accordance with law. Accordingly, we affirm the Tax Commis-sioner's fmal determination.

Sally F. Van Meter, Board Secretary

Legal Topics:

For related research and practice materials, see the following legal topics:Tax LawState & Local TaxesAdministration & ProceedingsJudicial ReviewTax LawState & Local TaxesUse TaxDefi-nitionsTax LawState & Local TaxesUse Taxlmposition of Tax

Appx. 16

Pallet World, Inc., Appellant, vs. Richard A. Levin, Tax Commissioner ofOhio, Appellee.

CASE NO. 2007-M-1 16 (USE TAX)

STATE OF OHIO -- BOARD OF TAX APPEALS

2010 Ohio Tax LEXLS 991

June 22, 2010, Entered

SUBSEQUENT HISTORY:Judgment entered by Pallet Worldv. Levin, 2010 Ohio Tax LE'XLS 1810 (Ohio B.T.A., Nav. 2, 2010)

COUNSEL:[*1] APPEARANCES:

For the Appellant - Leatherman & Witzler, Paul A. Skaff

For the Appellee - Richard Cordray, Attorney General of Ohio, Ryan O'Rourke, Assistant Attomey General

OPINION:

DECISION AND ORDER

Ms. Margulies, Mr. Johrendt, and Mr. Dunlap concur.

This cause and matter comes to be considered by the Board of Tax Appeals upon a notice of appeal filed herein byappellant, Pallet World, Inc. ("Pallet World"). Pallet World challenges the final determination of the Tax Conunissioner,appellee herein, wherein the commissioner affirmed an assessment issued as a result of a use tax audit of Pallet World'spurchases. The assessment covers the period January 1, 1999 through December 31, 2001.

Pallet World is an Ohio corporation and operates two major business units. Through one unit, Pallet World manu-factures mulch. Through a second operation, the purchases of which are in issue in this appeal, Pallet World manufac-tures, repairs, and sells new and used pallets. The two businesses are intertwined, as Pallet World reduces those palletsthat are unable to be repaired to mulch for sale in its sister business. Digital Recording ("DR") at 2:35:18.

During the audit period, Pallet World purchased trucks and [*2] truck repairs for which no sales tax was paid tothe state of Ohio. Pallet World claimed that such purchases were exempt from the imposition of sales (and correspond-ingly, use) tax because those trucks were licensed by the necessary govemmental agencies and in the business of trans-porting the goods of others. The Tax Commissioner's agent concluded, however, that the purchases were not exemptand assessed use tax, interest, and penalties. Pallet World challenged the assessment through the Tax Commissioner'sreview process, and ultimately to this board. Pallet World cites as error the Tax Commissioner's denial of the applica-tion of the "transportation for hire" exemption. nl

nl Pallet World also requested a review of a refund request made regarding certain invoices for which salestax was, according to Pallet World, erroneously paid. The Tax Commissioner's counsel filed a "motion to par-tially dismiss" the notice of appeal. At hearing, this board, construing that motion as a motion to ]imit the issuesto be considered, granted the motion. Therefore, the sole issue before this board is the applicability of the"transportation for hire" exemption contained in R.C. 5739.02(B)(32).

[*3]

The matter is considered by the Board of Tax Appeals upon the notice of appeal, the statutory transcript certified tothis board by the Tax Commissioner, and the record of the merit hearing, as well as the exhibits introduced at that time.The board also has the benefit of legal argument provided by counsel.

Appx. 17

We begin our consideration of this matter by acknowledging the duties imposed upon the Board of Tax Appealswhen reviewing a decision of the Tax Commissioner. The Tax Commissioner's findings are entitled to a presumption ofcorrectness and it is incumbent upon a taxpayer challenging a fmding of the Tax Commissioner to rebut the presump-tion and establish a right to the relief requested. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio St.3d 121, 537N.E. 2d 1302; Belgrade Gardens v. Kosydar (1974), 38 Ohio St.2d 135, 311 N.E.2d I; Midwest Transfer Co. v. Porter-

field (1968), 13 Ohio St.2d 138, 235 N.E.2d 511. Moreover, the taxpayer is assigned the burden of showing in whatmanner and to what extent the Tax Commissioner's determination is in error. Federated Dept. Stores, Inc. v. Lindley(1983), 5Oht0 St. 3d213, snt;;o B. 45 545 0 ivE.2d68 7. [*n]

As to the general law relating to the excise tax imposed upon sales of tangible personal property, such sales (andthe purchase of some services) are taxable unless an exception or exemption to the collection of sales tax has been pro-vided by the legislature. R.C. 5739.01 and RC. 5739.02. As a result of the basic presumption that all sales of tangiblepersonal property made within the state are subject to tax, the courts have determined that exceptions and exemptionsfrom taxation are to be strictly construed in favor of taxation. Ball Corp. v. Limbach (1992), 62 Ohio St.3d 474, 584N.E.2d 679; Highlights for Children, Inc. v. Collins (1977), 50 Ohio S1.2d 186, 364 N.E.2d 13. Also pertinent to thisappeal is the corresponding nature of the sales and use taxes. By virtue of R.C. 5741.02(C)(2), exemptions from salestaxation also apply to Ohio use taxation. Thus, our discussion encompasses the sales tax statutes.

As to Pallet World's specific claim, R.C. 5739.02(B)(32) exempts from the imposition of the sales tax imposed byRC. 5739.02 on retail sales:

"The sale, lease, repair, and maintenance of, parts for, or items attached to or incorporated in, [*5]motor vehicles that are primarily used for transporting tangible personal property belonging to others bya person engaged in highway transportation for hire, except for packages and packaging used for thetransportation of tangible personal property[.]"

The phrase "highway transportation for hire" is defined in R C. 5739.01(Z) to mean:

"[T]he transportation of personal property belonging to others for consideration by any of the following:

"(1) The holder of a permit or certificate issued by this state or the United States authorizing the holder toengage in transportation of personal property belonging to others for consideration over or on highways,roadways, streets, or any similar public thoroughfare;

"(2) A person who engages in the transportation of personal property belonging to others for considera-tion over or on highways, roadways, streets, or any similar public thoroughfare but who could not haveengaged in such transportation on December 11, 1985, unless the person was the holder of a perniit orcertificate of the types described in division (Z)(l) of this section;

"(3) A person who leases a motor vehicle to and operates it for a person described by division {*6](ZX 1) or (2) of this section."

In R.K.E. Trucking, Inc. v. Zaino, 98 Ohio St.3d 495, 2003 Ohio 2149, 787 N.E.2d 638, the Ohio Supreme Courtdiscussed the history of the "highway transportation for hire" exemption, which was originally related to an exemptionprovided to vehicles used "in the rendition of a public utility service." The court explained that the General Assemblyoriginally provided an exception from the imposition of sales tax to purchases made when the purchaser used the pur-chases "in the rendition of a public utility service." However, many businesses which were qualified to provide publicutility services, also known as "common carriers," additionally provided services as private transportation services. Thisportion of their business was known as "contract carriage" and purchases made in the business of contract carriage werenot excepted from the imposition of sales and(or use tax:

"[P I8] Prior to the enactment in 1985 of what is now R. C. 5739.02(B)(32) and R.C. 5739.01(Z) byAm.H.B. No. 335, common carriers could except purchases under R. C. 5739.01(E)(2) and G.C. 5546-I,

Appx. 18

which provided an exception from sales tax when the purpose of the consumer [*7] was 'to use or con-sume the thing transferred *** directly in the rendition of a public utility service.'

"[P I9] An understanding of the significance of the language the General Assembly used in R. C.5739.02(B)(32) can be gained from those cases that allowed common carriers the exception from taxa-tion for vehicles used 'directly in the rendition of a public utility service' prior to the enactment of R. C.5739.02(B)(32). In Midwest Haulers, Inc. v. Glander (1948), 150 Ohio St. 402, 406, 83 N.E.2d 53, ***^' '' h id ^"'t t " i:' l:: tI`S h"`nt the »^lir nrl „tuie iTiotvr carriei e a pP. aua v act as a common C?u..^. . SB Ug.... er1tLT.°. »» y^.°^ . , b»

it actually operated as a common carrier for only part of the audit period. The court granted Midwest'sclaim for exception from taxation only for the time period when it was operating as a common carrier,stating, 'The authorization to act as a common carrier does not in and of itself conclusively establish thatthere is such operation. The actual operation of a business deteimines its legal status ***.'

"[P20] In A. J Weigand, Inc. v. Bowers (1960), 171 Ohio St. 78, 167 N.E.2d 772, ***, a sales and use taxassessment was made against a motor [*8] carrier that used its equipment both in its common-carrierand in its contract-carrier operations. The greater portion of the revenue and the greater number of milestraveled resulted from the contract-carrier operation. The court denied the exception, stating, 'At no timeduring the audit period did appellant operate exclusively or primarily as a common carrier. The primaryuse to which the purchased property is put is determinative.' (Emphasis added.) Id at 79, ***

"1 [P21] In Manfredi Motor Transit Co. v. Limbach (1988), 35 Ohio St.3d 73, 518 N.E.2d 936, ***, themotor carrier operated both as a regulated common carrier and as a contract carrier. In addition, it hauledliquid waste without any specific regulation. Manfredi contended that it was engaged primarily in ren-dering a public utility service and that all its purchases should be excepted. The court disagreed withManfredi, finding that the first questions to be answered were whether the taxpayer was a regulated pub-lic utility and then whether it was rendering a public utility service when the purchases were made. If theanswers were yes, the court then looked 'to whether the [*9] item purchased was used directly in ren-dering the public utility service.' Id at 76, ***. However, 'if the item is used in a manner which wouldprovide exception from the tax and in another manner which would not provide an exception from thetax, the primary use test is applied.' (Emphasis added.) Id." (Parallel citations omitted.)

This discussion led to a conclusion as to the necessary elements that must be met when seeking an exemption underR.C. 5739.02(B)(32):

"[P22] From these decisions, three criteria were developed to determine whether purchases of motor ve-hicles and parts and services for those motor vehicles were excepted from taxation as used directly in therendition of a public utility service: ( 1) the purchaser must be a conunon carrier, (2) the purchaser mustactually be operating as a common carrier, and (3) the primary-use test is to be applied if the property isused both in a way that would make it eligible for the exception and in a way that would not make it eli-gible." (Emphasis added.)

The court noted that while "highway transportation for hire" was later removed from the definition of "public utilityservice" found [* 10] in R. C. 5739. 0](P), n2 the case law setting forth the elements to be met to be granted exemp-tion was not overruled. Therefore, the court held, in order to qualify for exemption under R.C. 5739.02(B)(32), one mustprove that:

"[T]he motor vehicle must be primarily used for the transportation of tangible personal property of othersfor consideration. To show that a motor vehicle is primarily used for the transportation of tangible per-sonal property of others for consideration, there must be proof of that use." Id at P27.

n2 Removing "highway transportation for hire" from the defmition of'"public utility service" found in RC.5739.01(P) and including an exemption for the purchases made to motor vehicles engaged in "highway trans-portation for hire" also had the effect of changing the status of purchases meeting the elements of "highway

Appx. 19

transportation for hire" from an exception to the imposition of sales tax, found in B.C. 5739.01, to an exemption

from sales tax. Exemptions are found in RC. 5739.02(B).

At the hearing before the board, Pallet World presented two witnesses. Mr. Timothy Welch, Pallet [*11] World'spresident, explained Pallet World's business units and the various contractual arrangements the corporation has with itscustomers. Stated succinctly, Mr. Welch testified that Pallet World did business under three major contractual arrange-ments: direct sales of pallets to customers; sales of pallets to brokers with a separate contract to transport the sold palletsto a broker's customer; and the pick up, repair, and replacement of pallets owned by another. D.R. at 2:39:51.

Through his testimony, W. Welch provided an explanation of the pallet business and the changes the business hasundergone over the last decade. Mr. Welch explained that prior to the early 1990s, pallets were seen as disposable items.While used for transportation and storage of items, users often disposed of the pallets after they were unloaded. In themid-1990s, however, companies began to realize the value of the pallets. At the same time, pallet sizes and shapes werestandardized by a grocery manufacturer's association. D.R. 2:19:46. Once pallets became standardized, they becameinterchangeable, and, therefore, more valuable.

Mr. Welch described Pallet World's business as "recycling." D.R. 1:47:06. Mr. [* 12] Welch also provided ex-amples for the three major arrangements under which Pallet World contracted during the audit period. As an example ofa contract in which Pallet World repaired and replaced the pallets of customers, Mr. Welch described Pallet World'soperations as related to a company known as Foodland. Foodland was a distribution center for an individual grocerystore operator located in Michigan. Various food manufacturers would deliver food to Foodland on pallets. The manu-facturers would have agreements with Foodland that a percentage of the pallets delivered must be returned to the manu-facturer after the food was removed for redistribution. D.R. 1:54:33. Pallet World contracted with Foodland to pick upempty pallets, return to Pallet World's location, grade the pallets, n3 refurbish the pallets that were repairable, and usefor parts those pallets that were no longer able to be repaired. 1:56:08. The remains of the unused parts were reduced tomulch and used in Pallet World's sister business. Useable pallets were either returned to Foodland or delivered directlyto the manufacturer. Mr. Welch testified [* 13] that Pallet World always had a "bank" of pallets originally picked upfrom Foodland at its location, so the pallets being retumed to a manufacturer may not have been the pallets last pickedup from the Foodland distribution center. D.R. 2:45:56. Loads were accepted by Pallet World when it received aFoodland bill of lading. D.R. 2:44:6.

n3 Grading, apparently, is the studying of a pallet to see if it is in satisfactory condition for Suther use, canbe used after being refurbished, or is so damaged that its only use is for parts for other pallets or mulch.

Pallet World also dealt heavily with pallet brokers. A pallet broker would purchase new pallets by lot and then givePallet World the opportunity to bid on the transportation of the new pallets to the end user. D.R. 2:02:51. SometimePallet World would win the contract for delivery and sometimes it would not. D.R 2:03:16. Once the deal was bro-kered, the bill of lading identified the broker as the owner of the pallets. D.R. 2:04:29. At that point, according to Mr.Welch, if Pallet World delivered the pallets sold to the broker, it did so as a transportation company, and not as the sell-er of the pallets. H.R. 2:05:16.

Finally, [* 14] Pallet World also sold new pallets to customers and delivered those pallets to their customers'place of business. Mr. Welch testified that the transportation of new pallets to customers comprised only 25 percent ofPallet World's business. D.R. 2:36:12.

Also testifying on behalf of Pallet World was Stephanie Singer. Ms. Singer, a member of Pallet World's accountingdeparhnent, prepared two summaries, which were marked Appellant's Exhibits I and 2. Ms. Singer explained that shecategorized every load delivered by Pallet World trucks during the audit period based upon whether the load was carry-ing goods of direct custoiners, broker accounts, or whether the load was of Pallet World's property. A final categoryincluded pallets sold but not delivered by Pallet World. Ms. Singer then calculated a percentage for each group of loadsin relation to the total loads shipped. Appellant's Ex. I is a pie chart based upon the percentages of the different trans-portation categories. Based upon Ms. Singer's calculations, the majority of Pallet World's loads consisted of transporta-tion of the goods of others.

The Tax Commissioner claims, inter alia, that the failure of Pallet World to provide any original [* 15j documen-tation defeats its claim that it was carrying the goods of others, because Mr. Welch's testimony regarding the manner inwhich Pallet World did business remains unsupported by documentary evidence. In this case, we must agree. In order toovercome the statutory presumption of taxability, a taxpayer must provide sufficient evidence to demonstrate entitle-

Appx. 20

ment to an exemption. Copperweld Steel Co. v. Lindley (1987), 31 Ohio St.3d 207, 31 Ohio B. 404, 509 N.E.2d 1242.As it directly relates to the primary use test, this board held in Miller v. Zaino (July 15, 2005), BTA No. 2003-V-373,2005 Ohio Tax LEXIS 886, unreported, that the testimony of a partner in a business purportedly engaged in transporta-tion for hire was not sufficient evidence for this board to conclude what, if anything, the business was actually trans-porting. In that appeal, the board allowed the exemption when further documentary evidence was provided as to the useof certain vehicles.

Appellant's Ex. 2 categorizes the loads delivered by Pallet World trucks during the audit period by customer. It isevident from that exhibit that the majority of Pallet World's loads, as the majority of its accounts receivable, came fromtwo sources, [* 16] Foodland and H & S, a pallet broker. Even if all other loads carried were considered to be trans-portation for hire, the percentages of loads carried would still be significantly less than 50 percent of Pallet World'sbusiness. Therefore, it is critical for Pallet World to prove that at least a portion of the loads for both Foodland and H &S were of pallets belonging to others.

As it concerns Foodland purchases, the Tax Commissioner urges this board to fmd that Pallet World dealt with thepallets as fungible commodities, as Pallet World was not required to match pallets. Mr. Welch acknowledged that PalletWorld kept a"bank" of pallets on location and returned similar sizes and pallets of equal quality, as opposed to theidentical pallets. The board has no documentation exhibiting ownership of the pallets, even though Mr. Welch testifiedthat bills of lading were prepared which indicated that ownership remained with Foodland.

As it concerns broker accounts, particularly H & S, Mr. Welch testified that the pallets brokered by H & S becameH & S property at the time of sale, and the transportation was a separate component of the sale. Yet, no documentationwas introduced to support [* 17] Pallet World's claim. Mr. Welch testified that the industry practice was to bill allcosts in a single line, yet no evidence of such bills was presented.

Finally, in Kurtz Bros., Inc. v. Tracy (Dec. 15, 1995), BTA No. 1994-P-614, 1995 Ohio Tax LEXIS 1529, unreport-ed, affirmed (July 25, 1996), Cuyahoga App. Nos. 70078, et seq., 1996 Ohio App. LEXIS 3192, unreported, discretion-

ary appeal not allowed (1997), 77 Ohio St. 3d 1495, 673 N.E.2d 150, this board, in considering "transportation for hire"

under R. C. 5739.02(B)(32), concluded that the taxpayer in that appeal failed to prove entitlement to the exemption be-cause it could not prove that separately identified transportation charges appeared on billing invoices. Mr. Welch testi-fied the delivery charges were not separately stated on any of the invoices prepared. D.R. at 2:49:45. Without a sepa-rately identified transportation charge, this board does not conclude that Pallet World has proved it was transporting thegoods of others.

Therefore, this board must find that Pallet World's evidence fails to prove that the company was primarily haulingthe goods of others. Therefore, we must conclude that the Tax Commissioner's fmal determination is correct, and mustbe affirmed. [*18]Return to Text

Appx. 21

The Premium Glass Company, lnc., Appellant, vs. Thomas M. Zaino, TaxCommissioner of Ohio, Appellee.

CASE NO. 2003-T-1475 (USE TAX)

STATE OF OHIO -- BOARD OF TAX APPEALS

2005 Ohio Tax LEXIS 1013

August 8, 2005; August 5, 2005, Entered

SUBSEQUENT HISTORY:Later proceeding at Premium Glass Co. v. Zaino, 2007 Ohio Tax LSXIS 657 (Ohio B. TA., May 4, 2007)

COUNSEL:[*1]

APPEARANCES:

For the Appellant -- Tobin D. Mann, General Counsel, The Premium Glass Co., Inc., P.O. Box 2605, Lancaster,Ohio 43130

For the Appellee -- Jim Patro, Attorney General of Ohio, Duane M. White, Assistant Attorney General, TaxationSection, State Office Tower, 16th Floor, 30 East Broad Street, Columbus, Ohio 43215-3248

OPINION:

DECISION AND ORDER

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap concur.

The Board of Tax Appeals considers this matter pursuant to a notice of appeal filed by The Premium Glass Com-pany, Inc. Premium appeals from a final determination of the Tax Commissioner, in which the commissioner affumed,with modification, a use tax assessment previously issued against Premium on purchases made during the period ofApril 1998 through December 2001. nl

nl The original assessment was in the amount of $ 69,274.25. The commissioner affirmed the assessment of taxand preassessment interest. The penalty was remitted upon condition that Premium pay the modified amountwithin sixty days of the expiration of the appeal period prescribed by R. C. 5717.02 and 5717. 04. S.T. at 2.

Premium specifies that the commissioner erred in assessing use tax on Premium's purchase of employment [*2]services. Because we conclude that Premium has failed to show by competent and probative evidence that it either hasremitted the tax or qualifies for an exception under R.C. 5739. 01(JJ)(3), we affirm the commissioner.

Premium is an Ohio corporation that manufactures decorative doorlights used in home entry doors. During the pe-riod in question, Premium purchased employment services from Manpower, Inc. Ralph N. Hicks, Jr., testified before usthat in 1997 he was hired by Premium as a consultant. Mr. Hicks testified that Premium was having difficulties in both8nding and keeping employees for its expanding operations. H.R. at 12. Upon the retirement of Premium's HR person,Mr. Hicks recommended that Premium outsource human resource functions to an employment service. Ultimately,Manpower was selected to perform this task. H.R. at 12-13. Under the arrangement, Manpower would supply personnelto Premium so that Premium could "review what they were doing prior to actually putting them on our payroll." H.R. at13. Premium's intent was to evaluate each person placed by Manpower. If that person proved to be a beneficial worker,Premium would offer that person an opportunity to become one [*3] of Premium's actual employees. Mr. Hicks testi-fied that Premium could not hire any of Manpower's workers for the first sixty to ninety days after placement. Eventu-ally, however, Premium did hire several of the workers supplied by Manpower. H.R. at 17.

Appx. 22

R.C. 5739.01(JJ) defines "employment service" as "providing or supplying personnel, on a temporary or long-termbasis, to perform work or labor under the supervision or control of another, when the personnel so supplied receive theirwages, salary, or other compensation from the provider of the service." Premium admits that its transactions with Man-power constitute an "employment service." Nevertheless, Premium argues that its transactions qualify for one of thestatutory exclusions to the definition.

RC. 5739.01(JJ)(3) provides that "employment service" does not include "supplying personnel to a purchaser pur-suant to a contract of at least one year between the service provider and the purchaser that specifies that each employeecovered under the contract is assigned to the purchaser on a permanent basis." Thus, to be excluded from taxation under

RC. 5739.01(JJ)(3), Premium must prove two elements: (1) there is a contract of at least [*4] one year between theservice provider and the purchaser, and (2) the contract specifies that each employee covered under the contract is as-signed to the purchaser on a permanent basis. See H.R. Options, Inc. v. Zaino, 100 Ohio St.3d 373, 2004-Ohio-1, at P

18, 800 N.E.2d 740, motion for clarification granted, 102 Ohio St.3d 1214, 2004-Ohio-2085, 807 N.E.2d 363.

In reviewing Premium's specifications of error, we observe that the findings of the Tax Commissioner are presump-

tively valid. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio St.3d 121, 537 N.E.2d 1302. Consequently, it is in-

cumbent upon a taxpayer challenging a determination of the commissioner to rebut the presumption and to establish aclear right to the requested relief. Belgrade Gardens v. Kosydar (1974), 38 Ohio St.2d 135, 311 N.E.2d 1; MidwestTransfer Co. v. Porterfield (1968), 13 Ohio St.2d 138, 235 N.E.2d 511. In this regard, the taxpayer is assigned the bur-den of showing in what manner and to what extent the commissioner's determination is in error. Federated Dept. Stores,

Inc. v. Lindley (1983), 5 Ohio St. 3d 213, 5 Ohio B. 455, 450 NE.2d 687. [*5] Additionally, all sales of tangible per-sonal property within Ohio are presumed to be subject to tax until shown otherwise. We emphasize that exceptions andexemptions to taxation are to be strictly construed in favor of taxation, and the burden rests with the taxpayer to affum-atively establish its right thereto. National Tube Co. v. Glander (1945), 157 Ohio St. 407, 105 NE.2d 648. See, also,

Frankelite Co. v. Lindley (1986), 28 Ohio St.3d 29, 28 Ohio B. 90, 502 NE.2d 213. n2

n2 Premium's specifications of error relate to the assessment of use tax. R C. 5739.02 levies a sales tax upon all

retail sales made in Ohio. A similar use tax is imposed by R. C. 5741.02. If a transaction is not subject to sales

tax, it follows that the transaction, if made within Ohio, is also not subject to use tax. R.C. 5741.02(C). Since our

analysis of the relevant sales and use tax provisions is essentially identical in the context of this appeal, we shallrefer only to the applicable sales tax provisions, unless circumstances require otherwise.

Premium asserts that it had an oral, one-year contract with Manpower. Mr. Hicks testified that the arrangement withManpower was to be "ongoing [*6] -- We told [Manpower] that we would try it for one year to see if it worked out andas long as it worked out, we would continue the operation between the two companies." H.R. at 17-18. See, also, H.R. at38 ("initially, when [Manpower] asked us to be our only supplier of people, we said that we will try it for one year tosee how it works out. If it continues to work out, then we will continue it indefmitely."). Ultimately, Premium utilizedManpower's services for approximately three years, discontinuing the relationship after Premium's business needs

changed.

An oral contract may be considered valid for purposes of R C. 5739. 01(JJ)(3); however, the contract must be of at

least a year in duration. Excel Temporaries, Inc. v. Tracy (Oct. 30, 1998), BTA No. 1997-T-257, 1998 Ohio Tax LEXIS

1383, unreported, at 7. "Although an oral contract may be relied upon, this does not mean that parol evidence may initself be sufficient in all cases to prove that the taxpayer's assignment of personnel is excluded from the defmition of anemployment service. Corroborating evidence may be necessary to establish that such contract exists and that perfor-mance under the contract meets the requirements contained within R.C. 5739.01(JJ)(3). [*7] " Id. at 7.

Upon review, we conclude that Premium has failed to provide sufficent probative evidence to establish that its rela-tionship with Manpower was made pursuant to a contract of at least one year. Mr. Hicks described the relationship withManpower as "on-going." In other words, the relationship would continue for an indefinite period of time but could beterminated at any time if Premium either had no further use for Manpower's services or was dissatisfied. While weacknowledge Mr. Hicks' testimony that Premium intended to give Manpower one year, we cannot conclude that thisestablished a contract between the two parties. At best, Mr. Hicks' testimony establishes only that Premium intended toevaluate Manpower over a probationary period, before agreeing to use Manpower exclusively for employment services.There is nothing in the record to establish that either party lacked the authority to terminate the relationship at any time

for any reason or that demonstrates that there was an oral contract that specified a term of at least one year.

Appx. 23

Moreover, the fact that the relationship between Premium and Manpower actually lasted over several years doesnot establish [* 8] that there was in place a contract, the terms of which were for at least one year. The most that Pre-mium can claim is that its use of Manpower's service was not likely to be completed within a year. This is not sufficentto establish that there was a contract in place of at least one year. Excel, supra, at 19, 1998 Ohio Tax LEXIS 1383.

Next, we are unable to conclude that Premium has established that each employee covered under any contract withManpower was assigned to Premium on a permanent basis. "We start with the understanding that an employee assignedon a permanent basis need not be assigned to an employer forever. We believe that in the context of R. C.5739. 01 (JJ)(3), assigning an employee on a permanent basis means assigning an employee to a position for an indefi-nite period, i.e., the employee's contract does not specify an ending date and the employee is not being provided eitheras a substitute for a current employee who is on leave or to meet seasonal or short-term workload conditions. Thus, boththe contract and the facts and circumstances of the employee's assignment are factors that must be reviewed to deter-mine whether the employee is being assigned on a permanent basis." KR. Options, supra, at P 21. [*9]

In H.R. Options, the court concluded that "a review of the actual employee contracts is required to determinewhether the employee was assigned for a defmite or indefinite term." Id at P 23. Premium has not submitted employeecontracts for our review, nor does it appear that such contracts were made available to the commissioner during his au-dit. Premium's burden is not limited to the mere assertion that it is within the statutory exclusion; it must affirmativelydemonstrate that each employee in question was placed with Premium permanently. Advantage Services, Inc. v. Tracy(Oct. 30, 1998), BTA No. 1995-T-I391, 1998 Ohio Tax LEXIS 1382, unreported, at 14. Premium has failed to meet this

burden.

We also fmd Mr. Hicks' testimony to be unavailing. First, Mr. Hicks referred to permanent employees placed byManpower to be those who were ultimately added to Premium's payroll. This is not in accord with the defmition of"permanent basis" set forth in H.R. Options, supra. Second, Mr. Hicks' tes8mony establishes that Premium utilizedManpower for seasonal and short-term workers. H.R. at 31-32, 36. We are unable to determine the extent of Premium'sreliance [* 10] upon Manpower for seasonal and short-term help. In addition, some of the workers placed at Premiumwere inmates working through some unspecified prison program. The record does not disclose the nature of theseplacements. Ultimately, we are unable to accept an ambiguity in the record that fails to corroborate for us the precisenature of each employee's assignment.

Having determined that Premium does not qualify for the R. C. 5739. 01 (JJ)(3) exclusion, we turn to its alternativeargument, that Premium has already paid the tax. Premium admits that the invoices it received from Manpower do notseparately state an amount of sales tax collected by Manpower on each transaction. Nevertheless, according to Premi-um, the lump-sum amount charged by Manpower on each invoice was inclusive of all sales tax due.

During the period assessed, RC. 5739.01(H)(1) defined "price" in the context of a sales tax transaction as "the ag-gregate value in money of anything paid or delivered, or promised to be paid or delivered, in the complete performanceof a retail sale * * * . * * * Price is the amount received inclusive of the tax, provided the vendor establishes to the sat-isfaction of the tax commissioner [* 11] that the tax was added to the price." n3

n3 R.C. 5739.0](H) has since been substantially rewritten. See Am. Sub. H.B. No. 95, eff. 9/26/2003.

Because the price of a retail sale is the aggregate, total amount received, the sales tax to be collected must be clear-ly distinguished on the billing or invoice. AA V Vending/Food Service Co. v. Limbach (Feb. 9, 1988), BTA No.1987-A-233, 1988 Ohio Tax LEXIS 173, unreported, at 7. If a claim is made that the price was inclusive of the tax, thetaxpayer must satisfactorily establish that the tax was added to the lump-sum price. If such is not satisfactorily estab-lished, then the price equals the aggregate amount received by the vendor and does not allow for any alleged payment of

tax. RC. 5739.01(H)(1). Denis Copy Co. v. Limbach (1992), 76 OhioApp.3d 768, at 773, 603 N.E.2d 359, motion to

certify the record overruled (1992), 63 Ohio St. 3d 1458, 590 N.E.2d 752; AAV, supra; Brewbaker Co., Inc. v. Tracy(June 30, 1998), BTA No. 1996-P-267, 1998 Ohio Tax LEXIS 935, unreported; Heidman, Inc. v. Limbach (Mar. 12,1993), BTA No. 1990-P-1519, 1993 Ohio Tax LEXIS 305, unreported; Northmoor Marina v. Kosydar (Mar. 21, 1975),

BTA No. C-344, unreported. In Gladieux Food Services, Inc. v. Kosydar (Feb. 27, 1975), BTA No. C-125A, [* 12]unreported, we concluded that a taxpayer has "the burden to establish that the tax has been paid, and the informationnecessary for the satisfactory establishment that the tax has been paid must come from the vendor, by the terms of [R C.5739.01(H)(1)]."

Upon review of the record, we fmd that Premium has not met its burden to establish that Manpower included salestax within the price charged. No evidence from the vendor, Manpower, has been presented to us, either through the tes-

Appx. 24

timony of someone from Manpower or its business records, to establish payment of the tax. Gladieux, supra. No Man-power records have been introduced to establish that its pricing included sales tax. n4 Denis and Gladieux, supra.

n4 A document from Manpower is contained in the statutory transcript. While this document enumerates severalelements included within Manpower's pricing stmcture, sales tax is not among those elements listed. Moreover,the document appears to relate to Manpower's pricing structure for another corporation, not for Premium. S.T. at5. We therefore do not find this document to be probative of Premium's claims.

Premium [*13] relies upon the testimony of Mr. Hicks and of Betty Thomton, Premium's secretary-treasurer, insupport of its clam that the tax was included in the overall charge invoiced by Manpower. However, while both wit-nesses testified that it was their understanding that the price charged was inclusive of all tax, Mr. Hicks admitted that he"cannot specifically say" which taxes and charges were included in the price, H.R at 16, and Ms. Thomton testified thatshe had "very little" involvement in the negotiations between Premium and Manpower. H.R. at 45. We do not find thisevidence sufficient to meet Premium's burden of proof.

Mr. Hicks and Ms. Thomton also testified that an early invoice submitted by Manpower did include a separatecharge for sales tax. The witnesses testified that they contacted Manpower and expressed their understanding that thequoted price would include all charges. In response, Manpower removed the sales tax from the invoice and did not in-clude the tax as a separate category on any future bi(ling. Premium asserts that this establishes that the price was inclu-sive of sales tax. We disagree. At best, the testimony establishes that sales tax was removed from the billings. [* 14] Itis not sufficient to establish that the price charged included sales tax. Again, no evidence has been presented to establishthat Premium paid, and that Manpower collected and remitted, the tax. n5 Accordingly, we must affn-m the commis-sioner's finding that the amount paid to Manpower did not include any payment of the assessed tax. Denis and AAV,

supra.

n5 A reasonable, alternative interpretation of Premium's evidence might be that Manpower took Premium's ob-jections to the separately stated sales tax as an assertion that the transactions were excepted or exempted fromthe tax. Without corroborating evidence, we cannot conclude that the removal of the tax from the billings estab-lishes that the tax was added to the lump-sum price.

In summary we find that Premium has failed to prove by competent and probative evidence that the commissioner'sfinal determination is in error. We fiuther find that, upon review, the commissioner's determination is supported by apreponderance of the record and is in accordance with law. Accordingly, we affirm the Tax Commissioner's final de-termination.

BOARD OF TAX APPEALS

RESULT OF VOTE YES NO DATE

Ms. Margulies 7/8/05Mr. Eberhart 8/5/05W. Dunlap 7/10/05[* 15]

Appx. 25