TMCnet News

Tax may force recruiter to move out of Iowa
[March 18, 2009]

Tax may force recruiter to move out of Iowa


(Gazette, The (Cedar Rapids, IA) Via Acquire Media NewsEdge) Mar. 18--CEDAR RAPIDS -- A Marion businessman has launched a lonely battle against Iowa's sales tax on employee recruitment fees, saying it discourages companies from hiring at a time of falling employment.



Bill Humbert learned about the tax the hard way: His company, The Humbert Group, was audited last year by the Iowa Department of Revenue.

The company isn't an employee recruitment firm. It contracts with employers, usually on a three-month basis, to provide strategies to improve their recruiting. Humbert performs a limited amount of hands-on recruiting, mainly to show the client how the strategies work.


The Humbert Group learned last month that it owes sales tax on recruitment services provided to out-ofstate companies. The sales tax was assessed even for services provided to out-of-state companies hiring employees for out-of-state locations.

"Essentially, they're putting me out of business," Humbert said.

Iowa has charged sales tax on services provided by executive search agencies since July 1, 1984.

Recruiters that only placed individuals in employment at locations outside of Iowa were not subject to the tax if the person's principal place of employment was outside of Iowa. However that exclusion doesn't apply under the law to "executive" search firms.

When Humbert asked what constituted an executive position, he was astonished by the response. Under state law, it is someone who made $30,000 per year or more.

Rep. Nick Wagner, R-Marion, sponsored a bill to exempt recruitment fees from the Iowa sales tax. Wagner said he was amazed that the tax even applies to recruitment.

"It's a service and most services in Iowa are not taxed," Wagner said, "especially services that are used by businesses that are trying to grow and hire people." Between 60 and 70 services in Iowa are taxed, according to Dave Casey, administrator of compliance for the Iowa Department of Revenue. He said the department has collected tax on executive search services that were performed in Iowa for a long time, regardless of where the client and recruited employees are based.

Humbert says he plans to move out of state if the tax remains at the end of the current legislative session. He's already met with economic development representatives in New Hampshire, which has no state sales or income tax, and also is considering Utah.

The committee to which the bill was assigned this week did not bode well for the bill's future. With the recession leaving big gaps in the state budget, it's expected to be a hard year to do away with taxes. But Wagner said he's pressing for consideration of the bill.

"Some of the taxes businesses end up paying are quite a bit of money," Wagner said. He said one small business owner showed him a invoice from a recruiter that included about $1,000 for tax on recruitment services.

The bill has the support of the nonpartisan Iowa Taxpayers Association. Association President Ed Wallace said taxing companies trying to hire good talent doesn't seem like the right message to be sending in this economy.

"The law is ambiguous," Wallace said. "House File 605 clarifies and modifies a provision that is sorely outdated." Wallace said the $30,000 annual salary benchmark for "executive" is one example. Some executive secretaries earn $60,000 in large companies, Wallace added.

-- Contact the writer: (319) 398-8317 or david.dewitte@gazcomm.com To see more of The Gazette, or to subscribe to the newspaper, go to http://www.gazetteonline.com.

Copyright (c) 2009, The Gazette, Cedar Rapids, Iowa Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

[ Back To TMCnet.com's Homepage ]