The signature item in Paul Ryan’s plan for reshaping the American tax system is his call for a value added tax of 8.5 percent. A value added tax, or VAT, works much like a sales tax in that it penalizes consumption, fosters savings and pole vaults tiring arguments about the fairness of income tax rates.
Although most staffing owners I suspect would favor the Ryan plan because among other things it would help move some of the 107 million Americans on the public dole off it, the actual effect of a VAT on the staffing industry is not so clear. In fact, it could be outright damaging.
If the VAT is applied to staffing as it does to most industries, that 8.5% would work much like the current sales tax on staffing in Ohio. That is, it would apply to the full amount of the invoice before taxes. If you billed $1000 for your service before, your customer will now be looking at an invoice of $1085 and perhaps wondering if you could help a little by lowering your rate.
If however the VAT is only applied to the markup portion, then the VAT would impact you less. Let’s say your gross profit on that $1000 invoice was 20% or $200. Under a markup-only Ryan VAT, you would need to charge your client $200 times 8.5% or $17 more, something that might not trigger a reaction from the client. For large industrial staffing providers with meager margins, the effect would even be less.
One thing is clear and that is that the VAT controversy never ends. In most of the European countries it spiraled upwards and in France hit 20% in 2003, forcing many small restaurants out of business. In the UK, prior to April 2009, you only paid VAT on the markup. After that date well you might as well have a tax attorney in your employ to determine whether the VAT applies to your healthcare staffing service (usually not), direct hire service (usually yes), and your service after March of 2011 (apparently just on the markup).
One guarantee: the last thing politicians will be concerned with is the confusion such changes can create for staffing businesses.