Are 'outplacement services' — counseling laid-off executives to find new jobs, paid for by their former employer — taxable in Connecticut as business management consulting or as employment-agency services?

Plain-English summary

A company sold "outplacement services" to employers that were laying off executives and middle managers. For a fixed fee per terminated employee — paid by the former employer, the same whether or not the person landed a new job — the company counseled each terminated employee: assessing career interests and building a profile, teaching interviewing and negotiation skills, developing a personalized job-search plan, and providing office space and mailing costs. Notably, the company gave no job leads and got no bonus if the person found work. It asked whether this is taxable as business management consulting / personnel training (§ 12-407(2)(i)(J)) or as employment-agency services (§ 12-407(2)(i)(C)).

DRS said neither — the services are not taxable.

Not personnel training / business management consulting (§ 12-407(2)(i)(J)). The regulations and Policy Statement PS 92(2.1) treat "personnel training" as part of consulting or human-resource-management services — but only when the job-related training teaches, maintains, upgrades, or improves the specific skills an employee needs for their current employer's day-to-day job. Outplacement fails that on every point: most terminated employees no longer have a current employer, the counseling doesn't relate to their former or present job functions (it's about finding a new job), and it isn't a "human resource management activity," which covers active employees. So it's not taxable business management.

Not employment-agency services (§ 12-407(2)(i)(C)). Taxable "employment services" (Regs. § 12-426-27(b)(3); PS 93(3.1)) mean procuring, for a fee, jobs for job-seekers or employees for employers. Outplacement counseling helps the terminated employee run their own search — it doesn't procure jobs or positions for consideration. So it isn't a taxable employment-agency service either.

What this means for you

Outplacement and career-transition firms

Counseling laid-off workers to find their next job — assessment, interview coaching, search strategy, office support — is not a taxable Connecticut service, even though the former employer pays you. It's neither personnel training (which is about a current job) nor an employment agency service (which requires actually placing people).

The line for taxable "personnel training"

Taxable personnel training is tied to a current employer's job: teaching or upgrading the skills the employee uses day to day where they work now. Training aimed at leaving or at a future employer falls outside it. If you sell training, map it against the "current job, current employer" test.

The line for taxable "employment agency" services

You're a taxable employment agency only if you procure jobs or employees for a fee. Advising someone on their own search — without placing them and without a placement/success fee — isn't procurement, so it isn't taxable under (C).

Who pays doesn't decide taxability

The former employer footing the bill didn't make outplacement a taxable "business" service. What mattered was the nature of the service (helping an individual's future job search), not who wrote the check.

Common questions

Q: Are outplacement services subject to Connecticut sales tax?
A: No. DRS held they're neither taxable personnel training / business management consulting nor taxable employment-agency services, so they aren't subject to sales tax.

Q: Why isn't outplacement "personnel training"?
A: Taxable personnel training must improve the specific skills an employee needs for their current employer's job. Terminated employees have no current employer, and the counseling is about finding a new job — so it doesn't qualify.

Q: Why isn't it an employment-agency service?
A: Because the company doesn't procure jobs or employees for a fee. It only counsels the terminated employee in that person's own search — no job leads, no placement/success fee.

Q: Does it matter that the former employer pays?
A: No. Taxability turns on the nature of the service, not who pays. Helping an individual find future employment isn't a taxable business-management or employment service.

Citations and references

Statutes and regulations:

• Conn. Gen. Stat. § 12-407(2)(i)(J) (business analysis, management, management consulting and public relations services)
• Conn. Agencies Regs. § 12-407(2)(i)(J)-1(f), (h), (i) (business management consulting; "core business activities"; human resource management activities)
• Conn. Gen. Stat. § 12-407(2)(i)(C) (services by employment agencies)
• Conn. Agencies Regs. § 12-426-27(b)(3) (definition of "employment services")

Related guidance (described in prose, not linked):

• Policy Statement PS 92(2.1) (personnel training as part of consulting / human-resource-management services)
• Policy Statement PS 93(3.1) (employment-agency services)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 94-17

Original ruling text

Ruling 94-17, Sales and Use Taxes / Business Management Services / Personnel Training Services / Services by Employment Agencies

FACTS:

A company (hereinafter "the Company") offers "outplacement services" to displaced employees of its clients' businesses. The Company enters into contracts whereby it sells its services to businesses which are in the process of terminating or have terminated either executives or middle-level managers (hereinafter "terminated employees"). Under those contracts, the Company is entitled to a fee for each terminated employee it counsels, payable by the former employer and in the same fixed amount, whether or not the terminated employee is successful at finding a new position.

The "outplacement services" involve counseling the terminated employee to determine that individual's goals; assessing the terminated employee's career interests and creating a personality profile, evaluating the terminated employee's experience, capabilities, career interests leading to the development of a career profile; educating the terminated employee as to interviewing and negotiation skills; developing a personalized job search plan; providing the terminated employee with the use of office space, the cost of all mailings, assistance with salary negotiations and job selection. The fee which the Company charges for these services is paid by the former employer; there are no costs borne by the terminated employee. The Company does not provide any career leads or job openings. The Company does not receive any additional compensation if the terminated employee obtains a new position.

ISSUE:

Whether "outplacement services" involving the counseling of the terminated employees of client companies constitute "personnel training services" which are subject to sales and use taxes as "business management consulting services" under Conn. Gen. Stat. §12-407(2)(i)(J) and Conn. Agencies Regs. §12-407(2)(i)(J)-1(f) and (i)(1).

Whether the "outplacement services" involving the counseling of the terminated employees of client companies constitute "services by employment agencies" under Conn Gen. Stat. §12-407(2)(i)(C).

DISCUSSION:

Conn. Gen. Stat. §12-407(2)(i)(J) defines "sale" and "selling" to include "business analysis, management, management consulting and public relations services." "Business management consulting services" are defined by Conn. Agencies Regs. §12-407(2)(i)(J)-1(f) as "the furnishing of advice and assistance on matters pertaining to the management of core business activities ... or human resource management activities ..." "Core business activities" are defined in Conn. Agencies Regs. §12-407(2)(i)(J)-1(h) as "activities directly related to a service recipient's lines of business involving sales of products, property, goods or services to others ...."

In Policy Statement PS 92(2.1), the Department defined "personnel training" as being a part of "consulting services" under Conn. Gen. Stat. §12-407(2)(i)(J)-1(f) or "human resource management services" under Conn. Gen. Stat. §12-407(2)(i)(J)-1(i). However, as the regulation and PS 92(2.1) make apparent, in order for a training service to be considered "personnel training," the "job related training" cannot include training provided to an employee unless it is directly related to teaching, maintaining, upgrading or improving the specific skills required in the employee's day to day job performance for the employee's current employer . The "outplacement services" being provided by the Company do not relate to the improvement of specific skills required in the terminated employee's job performance for its current employer, as most of these terminated employees no longer have "current" employers. Nor does the service being provided relate to the terminated employee's former or present job functions. It only relates to aiding the terminated employee in finding new employment. Furthermore, the "outplacement services" do not relate to the clients' "human resource management activities" as defined in subsection (i) of the regulation, since all of those activities relate to active employees, not terminated employees. Therefore, the "outplacement services" being provided are not "personnel training" and are thus not "business management consulting" or "human resource management activities."

Whether the "outplacement services" are "services provided by employment agencies" pursuant to Conn. Gen. Stat. §12-407(2)(i)(C) depends upon whether such services fall within the definition of "employment services" under Conn. Agencies Regs. §12-426-27(b)(3)(b): the procurement or offer to procure for a consideration: Jobs or positions for those seeking employment; or employees for employers seeking the services of employees.

See also PS 93(3.1), pp. 1-2.

Here, the "outplacement services" consist of counseling the terminated employee in order to assist that terminated employee in the employee's own employment search process. The services do not involve the procurement of jobs or positions for a consideration. Therefore, these services cannot be considered taxable services by employment agencies under Conn. Gen. Stat. §12-407(2)(i)(C) and Conn. Agencies Regs. §12-426-27(b)(3).

RULING:

"Outplacement services" involving the counseling of the terminated employees of client companies do not constitute "personnel training services" which are taxable as "business management services" under Conn. Gen. Stat. §12-407(2)(i)(J).

"Outplacement services" involving the counseling of the terminated employees of client companies do not constitute taxable "services by employment agencies" under Conn. Gen. Stat. §12-407(2)(i)(C).

LEGAL DIVISION

SEPTEMBER 6, 1994