Title: Corporate Staffing Resources, Inc. v. Zaino

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Corporate Staffing Resources, Inc. v. Zaino, 95 Ohio St.3d 1, 2002-Ohio-1486.] 
 
 
CORPORATE STAFFING RESOURCES, INC., APPELLANT, v. ZAINO, TAX COMMR., 
APPELLEE. 
[Cite as Corporate Staffing Resources, Inc. v. Zaino (2002), 95 Ohio St.3d 1.] 
Taxation — Use tax — Resale exception — R.C. 5739.01(E)(1) not applicable to 
company that uses technicians supplied by a temporary employment 
service to satisfy maintenance and repair contracts for products sold to 
its customers. 
(No. 00-2127 — Submitted November 13, 2001 — Decided April 3, 2002.) 
APPEAL from the Board of Tax Appeals, No. 97-M-538. 
__________________ 
 
COOK, J.  This appeal presents the question whether a company that uses 
technicians supplied by a temporary employment service to satisfy maintenance 
and repair contracts for products sold to its customers meets the R.C. 
5739.01(E)(1) resale exception to the state use tax.  Because we conclude that the 
company does not resell the benefit obtained from the temporary employment 
service in the same form in which it was received, we hold the resale exception 
inapplicable. 
I 
 
Sarcom, Inc. is a computer hardware provider that, among other products, 
offers its customers a “full insurance plan” service agreement.  Under this 
agreement, Sarcom contracts with its customers to provide all maintenance and 
repair service for specified computer hardware.  Because Sarcom’s need for 
technicians under this plan exceeded its own technical personnel, Sarcom 
supplemented its workforce during a portion of 1994 and the entirety of 1995 with 
computer technicians provided by Corporate Staffing Resources, Inc. (“CSR”), a 
temporary employment service. 
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Under the arrangement between Sarcom and CSR, CSR would pay the 
technicians an hourly rate and Sarcom would in turn pay CSR a fee consisting of 
a percentage above that rate.  The technicians would report each day to Sarcom, 
unless Sarcom had previously dispatched them to a worksite, where a Sarcom 
employee managed them.  When computer hardware covered under the Sarcom 
plan needed on-site repair, Sarcom would then dispatch from its offices an 
appropriate technician. 
 
In 1996, CSR filed on Sarcom’s behalf an application for a refund of use 
tax collected and remitted by CSR for its sale of employment services to Sarcom 
from October 1, 1994 to December 31, 1995.  Among other grounds since 
abandoned on appeal to this court, CSR asserted a right to a refund because the 
services that Sarcom sold were in the same form as the services that CSR 
provided, thus falling within the resale exception set forth in R.C. 5739.01(E)(1). 
 
The Tax Commissioner denied the refund application, finding in part that 
Sarcom did not resell in the same form the benefit of the temporary employment 
services provided by CSR.  CSR then appealed to the Board of Tax Appeals 
(“BTA”).  Relying upon our decision in Bellemar Parts Industries, Inc. v. Tracy 
(2000), 88 Ohio St.3d 351, 725 N.E.2d 1132, the BTA affirmed the Tax 
Commissioner’s denial of the refund.  The cause is now before this court upon an 
appeal as of right. 
II 
 
R.C. 5741.02(A) levies “an excise tax * * * on the storage, use, or other 
consumption in this state of tangible personal property or the benefit realized in 
this state of any service provided.”1  Specific exceptions exist to this general rule 
                                                          
 
1. 
Both parties refer to the statutes involved, R.C. 5739.01 and 5741.02, without specifying 
which versions were in effect for the claimed refund period.  Because there is no difference 
between the former versions of the relevant subsections involved and the current versions, we 
refer here to the statutes in their present forms.  See 1995 Am.H.B. No. 61, 146 Ohio Laws, Part I, 
383, 407 (effective October 25, 1995); 1994 Am.Sub.H.B. No. 632, 145 Ohio Laws, Part IV, 
January Term, 2002 
3 
of taxation, such as that found in R.C. 5741.02(C)(2).  That statute exempts from 
the use tax the acquisition of services that, “if made in Ohio, would be a sale not 
subject to the tax imposed by sections 5739.01 to 5739.31 of the Revised Code.”  
R.C. 5739.01(E)(1) provides an exception to both R.C. 5739.02 sales taxation and 
R.C. 5741.02 use taxation by excluding from the definition of retail sales (and 
therefore from taxation) “all sales * * * in which the purpose of the consumer is * 
* * [t]o resell the thing transferred or benefit of the service provided, by a person 
engaging in business, in the form in which the same is, or is to be, received by the 
person.” 
 
CSR contends that Sarcom qualifies for the exception because Sarcom’s 
use of CSR technicians to satisfy its service plans constitutes the resale of the 
benefit, in the same form, that Sarcom receives from CSR.  We disagree with this 
proposition. 
 
In Bellemar, we explained that “[t]he benefit of the services of a 
temporary work force must include and focus upon its most obvious benefit—that 
provided by the labor itself.”  Id. at 353, 725 N.E.2d at 1135.  Thus, the actual 
benefit to a company using temporary employees is “their contribution of 
temporary, flexible, and less costly labor to its work force.”  Id.  Other such 
benefits also exist, including screening candidates for future employment and 
controlling the costs of benefits.  Id.  Applying this “actual benefit” inquiry to the 
facts before us, we conclude that Sarcom did not resell the benefit of its 
transactions with CSR in the same form to its customers. 
 
The BTA found that during 1994 and 1995, Sarcom could not satisfy its 
service agreements without supplementing its technical personnel.  By using 
CSR-provided technicians, Sarcom was able to achieve control over a sufficient 
number of technicians to meet its contractual obligations.  Therefore, the actual 
                                                                                                                                                              
 
6568, 6572 (effective July 22, 1994); 1991 Am.Sub.H.B. No. 298, 144 Ohio Laws, Part III, 3987, 
4460-4461 (effective August 1, 1991). 
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4 
benefit to Sarcom was not the product of the workers’ labor—consistently 
operating computer hardware—but a temporary and flexible work force of 
sufficient size and expertise.  Further, although the hourly cost of CSR technicians 
exceeded the hourly wage of Sarcom technicians, Sarcom did not provide benefits 
for the temporary workers.  And the Sarcom employee who managed the CSR 
technicians testified before the BTA that, after a certain period of time, he had 
hired CSR technicians on as Sarcom technicians—thus realizing the screening 
benefit. 
 
These benefits contrast with the benefit that Sarcom provided to its 
customers.  The Sarcom employee responsible for negotiating the sale of service 
plans with Sarcom customers testified before the BTA that “[w]e were selling a 
service to our customers that basically were [sic] telling them we would keep their 
computers up and running.”  This offered benefit—functioning hardware—
matched what the Sarcom employee described as the customers’ desired benefit: 
“What the customers were negotiating for in the proposal period were the services 
to keep their computer up and running.”  The benefit to Sarcom’s customers, then, 
was not the labor of CSR technicians, but the end product of that labor: 
consistently operating computers.  Sarcom’s customers purchased a service to 
ensure a result, not the addition of service personnel to their own work forces.  To 
say that the actual benefit to Sarcom’s customers was the CSR technicians would 
be to ignore that no customer would purchase a service plan simply to employ 
technicians.  Rather, the customers purchased the service plans to realize the 
benefit of having functioning hardware, with the technicians being a means to an 
end. 
 
CSR argues that our decision in Bellemar is distinguishable.  In Bellemar, 
a company obtained workers from a temporary employment service to work at the 
company’s place of operations.  The company then sold the tangible results of that 
work—wheel assemblies—to its customers.  Bellemar, 88 Ohio St.3d at 351, 725 
January Term, 2002 
5 
N.E.2d at 1133.  CSR argues that here, however, “the CSR technicians performed 
their duties at Sarcom’s customers’ locations upon equipment owned by the 
customers.”  Therefore, CSR reasons, “[i]t logically follows that Sarcom’s 
benefit—deployed technicians to perform repair services under the customers’ 
supervision—was the same benefit received by its customers, the ultimate 
consumers.”  CSR thus urges us to conclude that “Sarcom and its customers were 
joint beneficiaries of the deployment of CSR technicians to customer sites.  The 
same benefit was received at the same location and at the same time by both 
Sarcom and its customers.” 
 
CSR’s reasoning is flawed.  While the proper focus of our inquiry should 
encompass all material factors, which could include the site at which the various 
actors realize their benefit, the geographic location of the realization of the benefit 
is not dispositive.  Such a narrow focus fails to account for the fact that Sarcom 
and its customers have different interests and ultimately realize different, although 
related, benefits—regardless of where the laborers perform their work. 
 
Our prior cases involving the resale exception provide examples of the 
proper analytical framework.  We described these cases in Bellemar: 
 
“In Hyatt [Corp. v. Limbach (1994), 69 Ohio St.3d 537, 634 N.E.2d 995], 
the taxpayer purchased laundry services, received laundered linens as the benefit 
of those services, and resold them in that form to the customers.  Likewise in 
CCH [Computax, Inc. v. Tracy (1993), 68 Ohio St.3d 86, 623 N.E.2d 1178], the 
taxpayer purchased tax return preparation, received completed tax returns as the 
benefit, and resold the returns unchanged to its customers.”  Bellemar, 88 Ohio 
St.3d at 354, 725 N.E.2d at 1135-1136. 
 
In both cases, the benefit received at each step in the transactional chain 
was the same.  The resale exception therefore applied.  These cases contrast with 
the facts of Bellemar, in which the benefit to the taxpaying company—or the 
manufacturer’s receipt of a supplemented work force—did not match the benefit 
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to its customer—or wheel assemblies, the product of the supplemented work 
force’s labor.  There, because the character of the actual benefit realized by each 
party did not remain consistent throughout the transactional chain, the resale 
exception did not apply.  In each of the three cases, the proper inquiry is a focus 
on the actual benefit received and not on the service purchased. 
 
CSR’s dual-benefit/site-focused approach thus fails to comport with our 
analysis in Bellemar and related cases, which follows the plain language of R.C. 
5739.01(E)(1).  We therefore reaffirm our prior holding that “[w]here a consumer 
contracts for temporary employees to add to its workforce, the benefit of that 
service is the labor of the employees, not the product of their work.  Because it is 
the consumer of the services, not its customer, that receives the benefit of the 
service, the benefit is not resold in the same form and the resale exception from 
the sales tax does not apply.”  Bellemar, 88 Ohio St.3d 351, 725 N.E.2d 1132, 
paragraph one of the syllabus.  Accordingly, we hold that Sarcom did not resell in 
the same form the actual benefit it realized from its transactions with CSR to 
those customers who had purchased the service agreement. 
III 
 
For the foregoing reasons, we conclude that CSR failed to prove that 
Sarcom satisfied the requirements of the resale exception.  We therefore affirm 
the decision of the BTA. 
Decision affirmed. 
 
MOYER, C.J., DOUGLAS, RESNICK and F.E. SWEENEY, JJ., concur. 
 
PFEIFER and LUNDBERG STRATTON, JJ., dissent. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting.  The majority holds that Sarcom’s 
use of technicians supplied by Corporate Staffing Resources Inc. (“CSR”) to 
satisfy maintenance and repair contracts was not subject to the resale exception in 
R.C. 5739.01(E)(1) and thus was subject to use tax.  I disagree. 
January Term, 2002 
7 
 
As the majority recognizes, Ohio law imposes a use tax on a “benefit 
realized in this state of any service provided,” R.C. 5741.02(A), but exempts 
services that would not qualify as a sale in Ohio as defined in R.C. 5739.01 to 
5739.31 of the Revised Code.  R.C. 5741.02(C)(2). 
 
A “sale” includes “[a]ll transactions by which * * * [e]mployment service 
is or is to be provided.” R.C. 5739.01(B)(3)(k).  “ ‘Employment service’ means 
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). 
 
R.C. 5739.01(E) defines the resale exception.  It excludes from the 
definition of a sale sales in which the purpose of the purchaser is to resell  the 
benefit of a service in the same form in which it was received.  R.C. 
5739.01(E)(1). 
 
The majority dismisses CSR’s contention that Sarcom resold the benefit of 
the CSR technicians in the same form that it received the benefit from CSR, based 
primarily on two conclusions.  First, the majority finds that the actual benefit of 
CSR technicians that Sarcom received was “a temporary and flexible work force 
of sufficient size and expertise.”  Second, the majority finds that the benefit of the 
CSR technicians to Sarcom’s customers “was not the labor of CSR technicians, 
but the end product of that labor: consistently operating computers.”  (Emphasis 
sic.) 
A. No Actual Benefit to Sarcom 
 
The resale exception, R.C. 5739.01(E)(1), reads: 
 
“(E) ‘Retail sale’ and ‘sales at retail’ include all sales except those in 
which the purpose of the consumer is: 
 
“(1) To resell the * * * benefit of the service provided * * * in the form in 
which the same is * * * received by the person.” (Emphasis added.) 
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“Purpose” means “something that one sets before himself as an object to 
be attained: an end or aim to be kept in view in any plan, measure, exertion, or 
operation.”  Webster’s Third New International Dictionary (1986) 1847.  I believe 
that evidence before the BTA indicated that the purpose of Sarcom’s purchase of 
the temporary use of the CSR technicians was to resell the benefit of the 
technicians’ labor to Sarcom’s customers. 
 
The decision to acquire technicians from CSR was made out of necessity.  
Because of its success in selling computer hardware, the demand for Sarcom’s 
repair services also increased.  Because of this increased demand for service and a 
tight labor market, Sarcom had to resort to filling its staffing needs through CSR, 
a temporary employment service.  Despite this, Sarcom’s service account 
manager testified that Sarcom preferred to use its in-house technicians for repair 
service.  This position was reiterated by Sarcom’s field service supervisor, who 
testified, “The advantage of using the Sarcom employee, they knew the Sarcom 
way.”  In fact, at least three of Sarcom’s customers prohibited Sarcom from 
contracting out their repair services.  Further, Sarcom paid a higher hourly rate for 
CSR technicians than for its own technicians.  To quote from Justice Pfeifer’s 
dissent in Bellemar Parts Industries, Inc. v. Tracy (2000), 88 Ohio St.3d 351, 357, 
725 N.E.2d 1132, I would find that any benefit received by Sarcom from hiring 
the CSR technicians was “ephemeral at best.” 
B. The Benefit to Sarcom’s Customers Was the Labor of the CSR Technicians 
 
I disagree with the majority’s characterization of the benefit of the CSR 
technicians received by Sarcom’s customers as “the end product of [the 
technicians’] labor: consistently operating computers.”  (Emphasis sic.)  Sarcom 
purchased the service of temporary employees from CSR.  The benefit of that 
service was the labor of the CSR technicians.  Sarcom did not use the technicians’ 
labor, but rather resold it to its customers to repair the customers’ computers.  
January Term, 2002 
9 
Therefore, I believe that Sarcom resold the benefit of the CSR technicians in the 
same form in which Sarcom received it. 
 
Even accepting the majority’s characterization of the benefit of the labor 
of CSR technicians to Sarcom’s customers as “the end product of that labor: 
consistently operating computers,” such a benefit is consistent with an example 
set out in Bellemar that defined a situation where the resale exception applied.  In 
Bellemar the court recognized that its holding did not eliminate the resale 
exception where the benefit of a purchased service is sold.  In characterizing the 
nature of the benefit that fit within the resale exception, the court in Bellemar 
gave the following example: “[I]f a service such as landscaping is purchased, the 
taxpayer need not resell landscaping services to meet the exception, but need only 
resell the benefit of those services, i.e., cared-for grounds.”  Id., 88 Ohio St.3d at 
354, 725 N.E.2d 1132. 
 
In this case, the majority holds that the benefit of the CSR technicians to 
Sarcom’s customers “was not the labor of the CSR technicians, but the end 
product of that labor: consistently operating computers.”  (Emphasis sic.)  I fail to 
see how that benefit differs from the cared-for grounds, which would also appear 
to be the end product of the landscaping services.  Therefore, pursuant to the 
example in Bellemar, the benefit of the CSR technicians, even if characterized as 
the end product of their labor, should be subject to the resale exception. 
C. The Majority’s Holding Leads to an Unreasonable Result 
 
This court has a duty to construe legislation to avoid unreasonable results.  
State ex rel. Commt. for the Referendum of Ordinance No. 3543-00 v. White 
(2000), 90 Ohio St.3d 212, 218, 736 N.E.2d 873.  As the dissenting member of 
the Board of Tax Appeals stated, ”If Sarcom had sufficient personnel to provide 
the same service, no tax would have been levied.”  Sarcom hired the CSR 
technicians to do work that Sarcom employees would have done had Sarcom been 
able to foresee the demand for computer repair.  Sarcom did not receive anything 
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more from the CSR technicians than it would have from its own employees.  
Sarcom should not be penalized from a tax standpoint for being unable to foresee 
staffing needs. 
 
Further, I believe that the majority’s holding results in double taxation.  
Not only was a use tax imposed on the labor of the CSR technicians, but Sarcom 
also collects a sales tax from customers for the repair services.  Thus, the labor of 
the CSR technicians was taxed twice. Accordingly, I believe that the majority’s 
holding leads to an unreasonable result. 
D. Conclusion 
 
Because I believe that  (1) Sarcom did not receive a benefit from its hiring 
of the CSR technicians and (2) Sarcom resold the benefit of the CSR technicians, 
i.e., the technicians’ labor, to its customers in the same form in which it was 
received, I believe that the resale exception set out in R.C. 5739.01(E)(1) applied.  
As a result, I do not believe that Sarcom should be taxed on its purchase of the 
labor of the CSR technicians.  Accordingly, I dissent. 
 
PFEIFER, J., concurs in the foregoing dissenting opinion. 
__________________ 
 
Vorys, Sater, Seymour & Pease, L.L.P., Anthony L. Ehler and Renee C. 
Khoury, for appellant. 
 
Betty D. Montgomery, Attorney General, and Robert C. Maier, Assistant 
Attorney General, for appellee. 
__________________