Receipts from the sales of executive employee recruitment services become subject to sales and use tax on 01/01/2023. ​​​​​



​Existing IRS guidelines for highly compensated employees (HCES) under IRC Section 414(q)(2) along with the common definition of the term “executive" as an administrator or manager in an organization are the criteria used to determine the types of recruitment services covered. For tax year 2023, the minimum compensation threshold level is $150,000. Therefore, recruitment services for placement of a highly compensated employee who is an administrator or manager for a Kentucky employer are subject to the sales and use tax.​

​Yes, to the extent both models provide recruitment services for Kentucky clients, the payments for these services are subject to Kentucky sales and use tax.​

​Yes, the sales and use tax on services is based upon where the customer receives the service and not necessarily where the service is performed.  Therefore, if an out-of-state service provider delivers executive employee recruitment services for a Kentucky company, the charges are subject to Kentucky sales and use tax. See KRS 139.105 and KY Administrative Regulation 103 KAR 30:190 for additional sourcing guidance.​

​The provider of executive employee recruitment services must report the receipts on its sales and use tax return and remit the applicable tax by the 20th day of the month following the previous month in which the executive recruitment services are provided, and receipts are recorded. Many retailers operate on an accrual basis, so transactions are often reported before payments are received. If a contract penalty results in a reduction in receipts, then the provider may take a deduction on the sales and use tax return in the same fashion as the returned merchandise deduction works with the sale of tangible personal property. Bonuses paid as part of the consideration given for the recruitment services are subject to tax as well. ​

​A provider of employee recruitment services is liable for sales and use tax on its gross receipts derived from the provision of employee recruitment services. If the provider bills its clients a lump sum amount that includes executive employee recruitment services without breaking out the charges from services not subject to tax, then the entire invoice amount is subject to tax. See KRS 139.215 for guidance on the taxation of bundled transactions where two or more products (one taxable service and one nontaxable service) are sold for one non-itemized price. ​

​No, if the recruitment placement is for an executive employee as described in Question #1, the services are subject to sales and use tax. ​

​Executive recruitment services providers must file and pay their taxes due online using the KY OneStop Business Portal. Monthly returns are due on the 20th day of the month following the previous month in which the executive recruitment services are provided and billed.

Online registration for a sales & use tax account is through the KY OneStop Business Portal. To obtain additional registration information, please refer to the OneStop online user guide.

Providers should report their total receipts for all services rendered (taxable and exempt) for the reporting period on the “Total Receipts" line of the return. They should then click on the “Deductions Worksheet" tab of the return and include all receipts from exempt services listed in the “Total Receipts" line on the “Other" deduction line.  The system will then calculate the remaining receipts subject to sales tax on the “Total Taxable amount" line. 

​No, a provider's purchases of equipment or any items consumed or used when providing the taxable services are taxable retail purchase transactions not eligible for exemption as purchases for resale. ​