Recently, a Wisconsin appeals court upheld a sales tax assessment against a provider of contract cleaning services. The taxpayer provided management, supervision, labor, and materials necessary for performing housekeeping and laundry services for several nursing home, retirement center and rehabilitation facility clients. Notably, the taxpayer laundered the linen items used at the facilities and the personal clothing of residents and patients. Typically, the taxpayer, once it signed a service agreement for a particular client location, hired the client’s existing laundry department to continue working on-site, but as the taxpayer’s employees. The new employees were supervised by an account manager employed by the taxpayer. Laundry services were billed separately from housekeeping services. The taxpayer, in various documents, described itself as a provider of laundry and housekeeping services. Under Wisconsin law, sales and use tax is imposed on businesses that sell, license, perform or furnish laundry, dry cleaning, pressing, and dyeing services. The taxpayer did not collect sales tax from its clients for the tax years at issue and was subsequently issued an assessment by the Wisconsin Department of Revenue. After the Tax Appeals commission and a circuit court ruled in favor of the Department, the taxpayer appealed.
On appeal, the taxpayer argued that the term “laundry services” was ambiguous as applied to it because it provided its clients with an entire laundry department that it managed and supervised. It essentially argued that it was unclear whether “laundry services” as used in the statute encompassed providing a qualified and dependable laundry staff that was capable of handling the outsourcing of a client’s entire laundry department. The court disagreed, agreeing with the Department that the term “laundry services” is “about as clear and unambiguous as it gets.” Although the taxpayer engaged in managerial and supervisory functions, it did so for the purpose of seeing that the laundry services were performed. Without the taxpayer, the clients’ dirty linens and other items would not be cleaned. The primary purpose of the taxpayer’s contracts with its clients, the court noted, was not so the taxpayer could provide a laundry department, it was for the client to obtain laundry services. The court next- in a rather lengthy discussion- rejected the taxpayer’s argument that taxing its services was inconsistent with the Commission’s earlier Manpower decision. In that case, the Commission rejected the Department’s “look through” position that whenever a temporary help company placed a worker in a temporary position performing a taxable service, the taxpayer owed sales tax on that service. The taxpayer’s position appeared to be that it was providing workers on a temporary basis to supplement a client’s workforce and therefore, its services could not be taxable. In rejecting this argument, the court noted that the taxpayer’s role was fundamentally different than that of a temporary help company. Please contact Jill Nielsen at 312-665-2794 with questions on Healthcare Services Group, Inc. v. Wisconsin Department of Revenue.