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Ohio
Sales Tax: Recent Decisions Limit Scope of
Taxable Employment Services
By
Steven A. Dimengo
 Two
recent decisions by the Ohio Board of Tax Appeals restrict the scope of taxable
employment services and may mean that your company is eligible to claim an employment
tax refund. In Moore Personnel Services v. Zaino, Ohio BTA Case No. 99-R-2098
(April 12, 2002), appeal pending with the Ohio Supreme Court, Case No. 99-R-2098,
the Board held that Moore did not provide employment services, but merely provided
payroll services and maintained personnel records for its customers. The customer
located, interviewed, selected, trained and controlled the employees, while Moore
simply paid them (charging the cost back to the customer). Moore never met the
employees. Accordingly, Moore was not a “provider” or “supplier” of employment
services as required by the statute.
In H.R. Options,
Inc. v. Zaino, Ohio BTA Case No. 01-M-808 (August 2, 2002), appeal pending
with the Ohio Supreme Court, H.R. performed “employment out-sourcing services”
where it entered into contracts to become the employer of record for laid-off,
retired and seasonal employees. Most of these employees had previously worked
for H.R.’s customers. Customers saved the expense of payroll administration and
employee benefits. The customers always provided H.R. with the names of persons
desired for services (rather than H.R.’s providing a list of names or filling
job positions with a pool of available employees). H.R. never recruited the employees,
but entered into contracts with the employees only after they were identified
by the customer. Generally, the employees tended to work for the same supervisor
of the former employer/customer. Following its decision
in Moore, the Board held that H.R. did not “provide” or “supply” any of
the employees. H.R.’s customers directed the employees to H.R. H.R. then merely
paid the employees and registered them for payroll and human resource services.
Accordingly, “employment services” were not provided. What
do these decisions mean? If the lessee or service recipient participates in obtaining
and directing the employees to the lessor, the Board is inclined to find the transaction
not taxable since no personnel are being “provided” or “supplied.” This would
arise any time a former employee is leased or the “lessee” participates in searching
for the employee. You should review tax paid on employment services during the
last four years to determine if any refunds exist. Pending a final determination
by the Ohio Supreme Court, protective refund claims should be filed.
Steve
Dimengo is a Shareholder and member of the Business Law Practice
Group. He can be contacted at sdimengo@bdblaw.com
or 330.258.6460. Computer
Forensics In The Age Of Electronically Stored Data
By Joel
H. Mirman
 Where's
that Selectric® typewriter when we need
it?
It doesn’t seem so long ago that people
communicated by writing letters or memos
created on Selectric® typewriters. When
they tore up the originals, the carbons
and the carbon paper, there was no trail
to follow.
How things have changed since
I began to practice law some 35 years ago. Today there are 10 billion e-mails
generated daily. It takes only eleven days of e-mail to equal the 107 billion
pieces of first class mail delivered in the United States in 1998. In
an organization of 100 employees, each generating an average of 10-15 e-mail messages
per day, there will be 240,000 to 360,000 e-mail messages per year, even before
factoring in backups and copies. Over 99% of all new information
created today is stored electronically. Less than one third of electronically
created data is ever produced in hard copy. And the information is decentralized.
In other words, it could have been created at the office on a desktop computer,
on a laptop, on a home computer, on a Palm Pilot®, Blackberry® or a similar device.
It could have been printed, saved on a hard drive or a floppy disk, a Zip® disk
or a Jaz® cartridge, on a tape backup, or on a CD. It could have been e-mailed
to countless recipients. And written words are not the only
form of communication that is stored electronically. In many cases, voice-mails
are converted to electronic WAVE files and are preserved. Telephone systems,
including land-based, cellular and digital systems, as well as pagers, Palm Pilots®
and Blackberrys® maintain call records that can be retrieved by a qualified forensic
expert. The impact of electronic data storage on the operation
of businesses is enormous. Most companies generate their information electronically,
but spend little or no time making sure that the information is secure. At most,
the typical small company makes some form of backup to enable data restoration.
Few have document retrieval programs that allow for the orderly retrieval of discreet
pieces of information. Protection of electronically created
information may become important in all sorts of settings. It may involve protection
of patient medical records or proprietary company information, or it may be critical
in the defense of (or decision to settle) charges of sexual harassment, age discrimination,
wrongful discharge and the like. Because less than one third
of all electronic data created is reduced to paper, just looking through a patient
file, a personnel file, a correspondence file, etc. should give no comfort that
one is seeing everything that has been said or written. E-mails
are a treasure trove of information. One of the problems with e-mail is its ease
of use. It is impersonal—there is no one staring the author in the face when
it is created. People say things in e-mails that they would “never” say in person.
And unlike the careless statement made in person, the e-mail message is preserved
for posterity—often in multiple copies and in multiple locations—locations that
may not be known to the author or the owner of the system where they were generated. E-mail
can be incredibly incriminating. Take for example the recent investigation of
Merrill Lynch by the New York Attorney General. Attorney General Spitzer released
e-mails and other documents showing that Merrill Lynch analysts had privately
derided stocks to which they had given top investment ratings. These electronic
pieces of evidence also showed that Merrill Lynch had compensated its Internet
analysts in part based upon how much investment banking business they helped to
win. Or consider someone who should have known better—Bill
Gates—apparently authoring an e-mail in which he said, “do we have a clear plan
on what we want Apple to do to undermine Sun?” The forensic
computer expert often deals with the following scenario: someone sends an inappropriate
e-mail. A supervisor learns of it and suggests that it be deleted immediately.
The sender deletes it from his “sent” folder and the recipient deletes it as well.
This is far from the end of the story. The expert will search to see who else
received copies and who received copies of the copies. Are there different versions
on the system? Is the information backed up somewhere? Did anyone make a hard
copy? Did anyone save it on another medium? Can it be retrieved from a server?
Can a search of the ISP—the Internet Service Provider—prove fruitful? And
even if it has been deleted from all systems, “deleted” does not mean destroyed.
When a file is deleted, the computer makes the space occupied by that file available
for new data. Reference to the deleted file is removed from directory listings
and from the file allocation table, but the bits and bytes that make up the file
remain on the hard drive until they are overwritten by new data, unless they are
successfully wiped by use of utility software. When computer
storage was expensive, hard drives were small, and it did not take long for data
to be overwritten. Now that it is common to have even home computers with 40
or more gigabytes of storage, it is much less likely that deleted data will be
quickly written over. This means that a file that appears to have been deleted
is probably still recoverable. Forensic experts agree that
one cannot rely on paper documents. Litigants should insist on full access to
electronic document creation and storage devices. These electronic versions have
imbedded data—called meta data—that will allow a forensic person to find when
they were created and by whom, when they were edited and by whom, what those edits
were, and who received a copy. Other examples include: E-mail
header: communication trail and information re: creation, recipients, transmittal
and receipt times; Web site log files re: visitors, time and
date of access; Browser information: cache of visited sites,
bookmarks, history of time or date sites visited, cookies deposited on hard drive
by web sites to identify visitors; Programs used; Files
accessed, including who, where, when and for how long; and Downloads,
to name a few.
Importantly, these documents
can be electronically searched—so the expert can conduct Boolean searches much
like those on Westlaw® or Lexis®. Instead of manually sifting through thousands—if
not millions—of pages looking for that needle in a haystack, the investigator
can have the system search for it electronically. Little
Protection Afforded Employee E-mails
In a recent case, an employee was
assured that e-mails were confidential. He was later fired because of inappropriate
and unprofessional comments on his employer’s e-mail system. He sued his former
employer. A Pennsylvania federal court held in favor of his employer, finding
no reasonable expectation of privacy in communications made in the company e-mail
system. Given the employer assurance, many courts would have found a privacy
right. Employers usually are held to have the right to search an employee’s e-mail
“if” notice is given. In a Northwest Airlines suit against
the flight attendants’ union, there was a flight attendant’s website chat room
providing a forum to discuss work-related issues including “sick outs” and strikes.
Northwest Airlines sought an order to search the hard drives and home computers
of union officials and some of its employees. Forty-three people were ordered
to turn over their computers. Even what was said on a home computer was “fair
game” for discovery in litigation. Keeping everything forever
is generally a bad idea. Keeping too much can make retrieval a bigger problem
than it needs to be. This can actually be used as an offensive weapon by some.
There are stories of a website instructing people to sue a certain company and
ask for certain kinds of documents. People were told that the company’s records
were so voluminous that it would rather pay a settlement than go through the production
process. Just because you “can” keep something a long time,
doesn’t mean you “should.” Some organizations simply box up old files and store
them away without any attempt to cull out what should not be kept. Now that electronic
document storage is so inexpensive, the “easy” decision may seem to be that everything
should be electronically stored. Generally speaking, that is a mistake. Most
organizations should not retain documents longer than they are needed; yet, most
do retain them in one form or another. How long should
documents be retained? Perhaps 75% of all documents created have no legally required
retention period. For the other 25%, there are retention periods in statutes
or regulation periods, statutes of limitations, or other factors requiring their
retention. And how will they be retained? Tapes are fragile.
Humidity and heat affect microfilm. And will the medium you use be readable when
you need it? Do you remember CP/M, an early operating system? Or 5¼ inch floppy
disks? Will the Word® document you save today be readable in 10 years? Should
it be saved in a static form such as PDF or TIFF? The decision
regarding how long to keep documents should be a combined management/legal decision.
Certain documents are not legally required to be maintained, but may be helpful
for historical purposes. After all, people die, retire, quit or even have honest
differences in their recollections of what took place. Management needs to decide
what makes sense for the organization. Whose cost is
it?
While the responding party normally bears the cost of gathering responsive
documents, Federal Rules 34 and 26(c) allow courts to shift the cost of document
production upon a showing of “undue burden and expense.” In some cases, courts
require some sort of expense sharing, or may require the requesting party to pay
the entire cost. An example of the reasoning employed by
some courts can be found in Rowe Entertainment, Inc., et al. v. The William
Morris Agency, Inc., et al., in which eight cost shifting factors were considered:
(1) specificity of the discovery requests; (2) likelihood of a successful search;
(3) availability from other sources; (4) purposes of retention; (5) benefit to
the parties; (6) total costs; (7) ability of each party to control costs; and
(8) the parties’ resources. Why keep it at all?
Given
the grief involved in document retention, companies may ask why they should retain
anything. Obviously, the documents may be needed for the company’s own defense.
There may be a statutory or common law duty to retain the records in their original
form. And the company will have the best chance of defeating a spoliation claim
if it has a “reasonable” records management policy that is consistently enforced. A
finding of spoliation can be very costly. Even in jurisdictions where there is
no independent tort of spoliation, courts have given juries an instruction on
“spoliation of evidence” which essentially say that if a party destroyed it, you
can assume that it was harmful to that party. Not only traditional
“documents” must be preserved, but it is also important that other electronic
media such as website content be retained as well. While there is little case
law to date, at law, a California court sanctioned a party under a spoliation
theory when it changed its web site during litigation. Who
pays for all this?
The approach many courts took in the early years was
that the computer was “fair game” for discovery in litigation. Other
systems keep records
If you are in a secure environment where employees
must gain access electronically, there may well be a running record of where employees
traveled throughout the course of a day. The computer system
tracks how long employees were on the system, how much time they spent on various
documents, and where they went on the system. Modern telephone
systems keep records of calls. How long are these records retained? And is voice-mail
retained as a WAVE file discoverable? Joel
Mirman is a Shareholder and member of the Litigation
Practice Group. He can be contacted at jmirman@bdblaw.com
or 614.227.4264.
BDB
Active In Martindale-Hubbell’s Counsel To
Counsel Forum
On
Wednesday, September 18, Nick George and Jerry Chattman participated in Martindale-Hubbell’s
Counsel To Counsel Forum. The event was held in Cleveland and included high-level
counsel from northeast Ohio corporations and representatives from major area law
firms. The Counsel To Counsel series is a global initiative that gives senior
corporate counsel the opportunity to discuss best practices in delivering or contracting
for corporate legal services. “We felt that this was a great
way to keep in touch with the evolving needs and expectations of our corporate
clients,” explained Nick George. “Based on the concerns expressed by several corporate
attorneys, I think our message of focusing on being responsive, solving problems
and continuing to develop relationships with the clients we serve as well as the
basics – returning calls, keeping clients up to date with events, and so on –
was timely and appropriate.” Jerry Chattman agreed. “The
forum was excellent. We definitely intend to continue our participation when the
Counsel To Counsel series is again held in Cleveland or the other cities we serve.” 
The
Firm is pleased to announce that Craig S.
Marshall was recently named Managing Partner of its Akron, Ohio office.
Mr. Marshall joined the firm in 1986 and represents a
wide variety of small, medium, and large privately-held businesses throughout
the area, specializing in corporate law, business transactions, mergers and acquisitions,
business dispositions, business succession planning, business start-ups, and tax-related
issues. He is considered among his peers to possess very high to pre-eminent
legal ability and very high ethical standards as is reflected in his “AV” rating
established by opinions from members of the local legal community. Beth
Langton has been named Vice President of the Ohio Regional Association of
Law Libraries. She is responsible for planning the educational program for the
Annual Meeting titled “The Challenge of Change” at the Crowne Plaza at
Quaker Square in Akron, Ohio on October 16-18, 2002. David
L. Drechsler, author of “Non-competition Agreements,” was published
in the August edition of Small Business News, a Smart Business Network publication.
The book "Selecting The Right Form of Business,”
co-authored by Thomas J. Sigmund,
will be on shelves in October. Paul
J. Hess, Jr. will be participating as a judge in the Moot Court Negotiating
Competition at the Ohio State College of Law.
Save
the Date for these Upcoming Presentations:
Buckingham’s
Employment Law Practice Group 14th Annual Seminar will be held
as follows: October 16, 2002, Akron, Ohio - The
City Club of Akron October 23, 2002, Independence, Ohio
- Holiday Inn Rockside Road
Thomas
W. Hess and Joel H. Mirman (Buckingham
ColumbusSM) will be presenting a series
of seminars sponsored by the Association of Ohio Philanthropic Homes, Housing
and Services for the Aging. Their topic will be “Nursing Home Malpractice
in Ohio: Successful Case Management from Investigation to Trial.” The dates
and locations are as follows: - October 15, 2002 - Akron,
Ohio - Sheraton Suites, Cuyahoga Falls
Please
reference www.nbi-sems.com for additional
information and registration.
On October 15, 2002,
Bret
A. Adams and Paul
J. Hess, Jr. (Buckingham ColumbusSM)
will be presenting at the Columbus
Bar Association Sports/Entertainment Committee’s
CLE Issues in Sports Law in Ohio. Their
topics are: “Sports Contracts and
Negotiation,” “Ohio Agent Law,” “The Proposed
Federal Legislation (SPARTA) to Regulate
Sports Agents,” and “Uniform Athlete
Agents Act.” Please reference www.cbalaw.org for additional information.
On
October 17, 2002, Robert E. Pershes (Buckingham
Boca RatonSM) will be presenting “Electronic
Evidence and How Do You Get It” in Washington D.C. at the Annual Meeting of
the American Intellectual Property Lawyer Association. Please reference www.aipla.org
for additional information. October 24, 2002
- Health Law Seminar for Long Term Care, Columbus, Ohio - Arena
Grand Theater (The State of Ohio has approved this seminar for 3 Credit Hours
for Nursing Home Administrators) To register on line
visit www.bdblaw.com/seminars.asp or contact
Maria Denisiak at mdenisiak@bdblaw.com
or 330.258.6478. On October 29, 2002, Thomas
J. Sigmund (Buckingham ColumbusSM) will
present “New Qualified Plan Designs After EGTRRA” at the Columbus Tax Conference
sponsored by the Columbus Bar Association. Please reference www.cbalaw.org
or 614.221.4112 for additional information. On
November 7, 2002, Rana M. Gorzeck
and Mary Sue Donohue (Buckingham
Boca RatonSM) will be giving a presentation,
on behalf of the Firm, titled “The Patriot Act,” to the local chapter of
American Woman’s Society of Certified Public Accountants at the Tower Club in
Fort Lauderdale, Florida. On November 13, 2002,
Phylip J. Divine (Buckingham AkronSM)
will be presenting at the Canton Estate Planning Forum sponsored by the Akron/Canton
Chapter of the Ohio Society of CPAs. For additional information, please contact
Bruner Cox – Estate Planning Forum at 330.497.2000. On
November 15, 2002, Bret A. Adams
and Paul J. Hess Jr. (Buckingham
ColumbusSM) will be presenting “Current
Trends in Sports Law” sponsored by the Columbus Bar Association. Please reference
www.cbalaw.org or 614.221.4112
for additional information. On November 21, 2002,
Robert A. Hager (Buckingham ClevelandSM)
will be speaking on “Lien Law” for Lorman Education Services. Reference
www.lorman.com for registration and
additional information. On November 21 - 22, 2002,
Robert W. Malone (Buckingham AkronSM)
will be the Chair of the Cleveland Tax Institute Panel for the Cleveland Bar
Association. Please visit www.clevelandbar.org
for additional information. On December 10, 2002,
Gerald B. Chattman and John
P. Slagter (Buckingham ClevelandSM) will
be presenting on “Legal Issues Involving Ohio Local Governments” at a National
Business Institute sponsored seminar. Please reference www.nbi-sems.com
for additional information.
Out
and About – Recent Presentations:
Business
Law Practice Group Deborah D. Hoover (Buckingham
AkronSM) spoke at the Leadership Akron Retreat
on “Grant Review Procedures” for the Philanthropy Project. David
J. Hrina (Buckingham AkronSM) presented
“Environmental Concerns for Developers,” at the “Current Issues in Subdivision
Annexation and Zoning Law” Seminar sponsored by the National Business Institute.
Robert W. Malone
(Buckingham AkronSM) gave a presentation
to the Akron Area Board of Realtors regarding the “New Summit County Proposed
Sales Tax for the Public Schools.” Employment Law Practice
Group Gerald B.
Chattman, Douglas S. Paul and Jeffrey
T. Royer (Buckingham ClevelandSM) conducted
a Confidentiality Training Seminar for the Western Reserve Area Agency
on Aging. Vincent
J. Tersigni (Buckingham AkronSM) presented
“HR & Legal Crossroads: Addressing Performance Problems in the Workplace,”
in Fairlawn, Ohio at the Rosemont Country Club. Health
Law Practice Group Joseph
J. Feltes (Buckingham CantonSM) and
Patrick H. Reymann (Buckingham AkronSM)
spoke at the Firm’s Health Law Seminar for Physicians and Hospitals. The topics
were “Effectively Managing HIPAA Issues” and “10 Major Physician Billing/Coding
Problems.” Eric
M. Simon (Buckingham ClevelandSM) and
Thomas W. Hess (Buckingham ColumbusSM)
were presenters at Buckingham’s Health Law Seminar for Long Term Care. Their
topics were “Effectively Managing HIPAA Issues” and “The Survey Process.” Medical
Malpractice Defense Practice Group Christopher
S. Humphrey (Buckingham CantonSM) spoke
on “Risk Management for Long Term Care: A Defense Perspective” to The Ohio
State Bar Association. He also spoke at the Firm’s 2002 Health Law Seminar for
Long Term Care on “Patient Bill of Rights/Negligence Litigation Update.”
Ronald M. Wilt
(Buckingham ClevelandSM) presented “Medical
Malpractice/Negligence Litigation Update” at Buckingham’s Health Law Seminar
for Physicians and Hospitals. Real Estate & Construction
Law Practice Group Nicholas
T. George (Buckingham AkronSM) was a
Professor for a Day at the University of Akron, in Akron, Ohio. The topic of
the course is “Legal Environment of Business.” Frederick
M. Lombardi (Buckingham AkronSM), Alan
P. DiGirolamo, Robert A. Hager, and
John P. Slagter (Buckingham ClevelandSM)
were presenters at “Using Ohio Construction Laws To Your Advantage” sponsored
by Lorman Education Services. They presented “Legal Aspects of Construction
Contracts and Ohio Construction Law.” Donald
B. Leach, Jr. (Buckingham ColumbusSM) spoke
on “Design Build Construction: Contracting and Insurance Issues,” in Columbus,
Ohio for Lorman Education Services and “Ohio Mechanics’ Lien Law: The How’s
and Why’s of the Paperwork,” for the Builders Exchange of Central Ohio. He
also presented “Design Build Construction: Contracting and Insurance Issues,”
in Columbus, Ohio for Lorman Education Services. Trusts
& Estates Law Practice Group David
L. Drechsler and David W. Woodburn
(Buckingham AkronSM) spoke at Buckingham’s
Complex Probate Litigation Seminar in Akron, Ohio. Their topics were “Will
Contest: Procedures, Lack of Testamentary Capacity and Undue Influence,” “Intentional
Interference with Inheritance,” and “Concealed & Embezzled Assets.” Thomas
J. Sigmund (Buckingham ColumbusSM) hosted
the Buckingham Breakfast Exchange in Columbus. The topic was “Distribution
Planning from IRAs and Qualified Plans under the New Rules.”
If you
are interested in obtaining information on upcoming seminars or would be interested
in having speakers from Buckingham, Doolittle & Burroughs, LLP make a presentation
to your organization, please contact: Cheryl Warren, Director of Client Relations
and Marketing at cwarren@bdblaw.com
or 800.686.2825 ext. 546.
At BDB we are always improving our processes so that we operate
efficiently and effectively. Please let us know how you like our new broadcast
format. E-mail: bdb@bdblaw.com Phone: 330.258.6473
Fax: 330.252.5473.
Thank you.
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I
am very excited about assuming the editorship of the Advisor from Jeannette
Knudsen. I will work to continue the Advisor’s tradition of providing
you with current legal information in a timely manner.
