Are environmental and safety training and consulting services for a manufacturer taxable business management services in Connecticut?

Plain-English summary

A manufacturer with locations in and out of Connecticut — whose operations generate hazardous waste — hired a provider for a bundle of environmental and safety services: environmental audits, environmental consulting, environmental compliance training, safety consulting, and safety training (including "train-the-trainer" sessions and direct training of other employees). DRS was asked which of these are taxable under Conn. Gen. Stat. § 12-407(2)(i)(J), the tax on business analysis, management, management consulting, and public relations services.

The key rule: these services are taxable only when they relate to the client's "core business activities" or its "human resource management activities" (Conn. Agencies Regs. § 12-407(2)(i)(J)-1). "Core business activities" are those directly related to the client's lines of business — selling its products, its capital structure, budgeting, and planning. "Human resource management activities" include hiring, development, job-related training, compensation, and management of personnel. DRS split the bundle:

Taxable — the training (a human-resource-management activity).

• Training the company's trainers (employees whose job is to train others) is furnishing advice and assistance on job-related training — a human-resource-management activity — so the environmental-compliance and safety train-the-trainer services are taxable business management consulting.
• Training other employees to comply with environmental laws and with the company's safety programs is "job-related training" as defined in PS 92(2) (training that teaches, maintains, upgrades, or improves the specific skills needed in an employee's day-to-day job), so it, too, is a taxable human-resource-management service. (By contrast, PS 92(2) says training on things like motivation, time management, defensive driving, or wellness is not taxable job-related training — but that wasn't what was provided here.)

Not taxable — the audits, assessments, and consulting.

• Evaluating the company's internal environmental-compliance or safety organization, evaluating its programs, identifying and managing environmental hazards, developing a waste-minimization program, and staying compliant with environmental laws are not activities directly related to the company's core business of selling its manufactured products (they resemble the regulation's examples of activities not directly related to core business), and they are not human-resource activities either. So those environmental and safety consulting/audit services are not taxable.

DRS later clarified this Ruling in Ruling 94-12.

What this means for you

Training vs. consulting is the tax line

For environmental, safety, and similar professional services, Connecticut's business-management-services tax often turns on whether you're training employees (a human-resource-management activity, taxable when job-related) or assessing/advising on a compliance function (not the client's core business, and not HR — often not taxable). The same provider can deliver both, with different tax results.

"Job-related training" has a specific meaning

Under PS 92(2), taxable job-related training is training that builds the specific skills an employee needs to do their job — like teaching workers to run environmental audits or follow safety procedures. Training on general topics (motivation, wellness, defensive driving) is not taxable job-related training. Characterize each session by what skill it actually teaches.

Compliance and risk work usually isn't "core business"

Evaluating a manufacturer's environmental-compliance organization or building a hazardous-waste-minimization program relates to regulatory compliance and risk, not to the company's core business of selling products — so it generally falls outside the business-management-services tax. Separate compliance-consulting charges from any taxable training on the invoice.

Common questions

Q: Is environmental-compliance consulting taxable in Connecticut?
A: Under this ruling, no — evaluating a manufacturer's environmental or safety compliance programs isn't directly related to its core business of selling products, and it isn't a human-resource activity, so it's not a taxable business management service.

Q: Is safety or environmental employee training taxable?
A: Yes, when it's "job-related training" — teaching employees the specific skills their jobs require (like conducting environmental audits or following safety programs). That's a human-resource-management activity subject to tax.

Q: What about training the trainers?
A: DRS treated training employees whose duty is to train others as furnishing advice and assistance on job-related training — a taxable human-resource-management service.

Q: The provider does both — how should it bill?
A: Separate the taxable training charges from the non-taxable consulting/audit charges. Because this ruling was later clarified by Ruling 94-12, and the law has changed over time, confirm the current treatment.

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(d)-(g) (service definitions); § 12-407(2)(i)(J)-1(h) and (h)(1),(2),(8) (core business activities); § 12-407(2)(i)(J)-1(i) (human resource management activities)

Policy statement and case law (as cited by the ruling):

• Policy Statement PS 92(2) ("job-related training"); Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 600, 522 A.2d 771 (1987)

Related guidance (described in prose, not linked):

• Ruling 94-12 (clarifies this Ruling)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 92-14

Original ruling text

Ruling 92-14, Sales and Use Taxes / Business Analysis, Business Management and Business Management Consulting Services

Ruling 92-14

Sales and Use Taxes Business Analysis, Business Management and Business Management Consulting Services

This Ruling has been clarified by   Ruling 94-12

FACTS:

1. A company [hereinafter, "the Company"] with business locations both within and without Connecticut has as its core business the manufacture and sale of products. In the course of the Company's manufacturing business, hazardous wastes are generated.

2. The Company contracts with a service provider [hereinafter, "the Provider"], under which contract the Provider will provide the following services to the Company:

A. The Provider will assist the Company in identifying and managing existing environmental hazards and risks at its business locations both within and without Connecticut and in staying in compliance with federal and state environmental laws. (The Company and the Provider refer to these services as "environmental audit services.")

B. The Provider will assess the performance of the Company's internal environmental compliance organization, evaluate the implementation and effectiveness of the Company's environmental programs at its business locations both within and without Connecticut, and develop and implement a program for the management and minimization of hazardous and solid wastes. At the Company's business locations both within and without Connecticut, the Provider will also train the Company's employees in conducting environmental audits which are intended to test the Company's compliance with federal and state environmental laws. (The Company and the Provider refer to these services as "environmental consulting services.")

C. At a location outside Connecticut, the Provider will provide training to ensure compliance with federal and state environmental laws by the Company's employees . The training will be provided to certain of the Company's employees in order for such employees to train the Company's supervisory employees. The supervisory employees to whom such training will be provided work at the Company's business locations both within and without Connecticut. At the Company's business locations both within and without Connecticut, the Provider will also provide training to other employees of the Company to ensure state environmental laws. These employees will not be expected to train others. The employees to whom such training will be provided work at the Company's business locations both within and without Connecticut. (The Company and the Provider refer to these services as "environmental compliance training services.")

D. The Provider will assess the Company's internal safety organization and evaluate the implementation and effectiveness of the Company's safety programs at its business locations both within and without Connecticut. (The Company and the Provider refer to these services as "safety consulting services.")

E. At a location outside Connecticut, the Provider will provide safety training to certain of the Company's employees in order for such employees to train the Company's supervisory employees. The training is intended to ensure compliance with the Company's safety programs by the Company's employees. The supervisory employees to whom such training will be provided work at the Company's business locations both within and without Connecticut. At locations both within and without Connecticut, the Provider will also provide safety training to other employees of the Company to ensure their compliance with the Company's safety programs. The employees to whom such training will be provided work at the Company's business locations both within and without Connecticut. (The Company and the Provider refer to these services as "safety training services.")

ISSUES:

Issue One: Whether training provided to employees whose duty it is to train other employees constitutes the furnishing of advice and assistance on matters pertaining to human resource management activities.

Issue Two: Whether training provided to employees of a manufacturing business which generates hazardous wastes, to ensure compliance with federal and state environmental laws and with the employer's safety programs by such employees constitutes the controlling or directing of all or a portion of the employer's human resource management activities.

Issue Three: Whether evaluation of the internal environmental compliance or safety organization or of the implementation and effectiveness of environmental or safety programs of a manufacturing business which generates hazardous wastes, constitutes the examination of data relating to (and the formulation of conclusions, and the making of recommendations based thereon), or the furnishing of advice or assistance on matters pertaining to, the management of core business activities or human resource management activities.

Issue Four: Whether furnishing of assistance to a manufacturing business which generates hazardous wastes, in identifying and managing existing environmental hazards and risks, in staying in compliance with federal and state environmental laws, and in developing and implementing a program for the management and minimization of hazardous and solid wastes constitutes the examination of data relating to (and the formulation of conclusions, and the making of recommendations based thereon), or the furnishing of advice or assistance on matters pertaining to, the management of core business activities.

DISCUSSION:

Conn. Gen. Stat. §12-407(2)(i)(J) defines "sale" and "selling" as including "business analysis, management, management consulting and public relations services." The terms "business analysis services," "business management services," "business management consulting services," and "business public relations services" are defined in Conn. Agencies Regs. §12-407(2)(i)(J)-1(d), (e), (f) and (g), respectively. Under Conn. Agencies Regs. §12-407(2)(i)(J)-1, these services are not subject to sales and use taxes unless they relate to the service recipient's core business activities or human resource management activities.

The term "core business activities" means and includes activities directly related to a service recipient's lines of business involving sales of products, property, goods or services to others, its capital structure, its budgeting and its short-range, long-range or strategic planning...

Conn. Agencies Regs. §12-407(2)(i)(J)-1(h).

The term "human resource management activities" means and includes activities relating to (1) the hiring, development, job-related training, compensation and management of personnel ....

Conn. Agencies Regs. §12-407(2)(i)(J)-1(i).

The Connecticut Supreme Court has said that, in the absence of any evidence to the contrary, a regulation's submission to the regulation review committee and its subsequent ratification "[support] the position that the regulation is consistent with the general statutory scheme that the regulation was designed to implement." Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 600, 522 A.2d 771 (1987).

Issue One: The training provided by the Provider to Company employees whose duty it is to train other employees is the furnishing of advice and assistance on matters pertaining to job-related training. Conn. Agencies Regs. §12-407(2)(i)(J)-1(i). Thus, the environmental compliance training services and the safety training services provided to these trainers are business management consulting services pertaining to the Company's human resource management activities.

Issue Two:  The training provided by the Provider to other Company employees who will not be expected to train others is the controlling or directing of all or a portion of the Company's human resource management activities, if the training is job-related training. PS 92(2) provides that:

The term "job-related training," as used in Conn. Agencies Regs. §12-407(2)(i)(J)-1, means training which is directly related to teaching, maintaining, upgrading or improving the specific skills required in the employee's day to day job performance.

PS 92(2) ("DEFINITIONS"): Taxable training does not include training indirectly related to an employee's job skills. Such topics include, but are not limited to, motivation, self-image, time-management, public speaking, and interpersonal skills. Taxable training does not include training involving topics unrelated to the skills required of employees in the day to day performance of their jobs. Such topics include, but are not limited to, defensive driving skills, alcohol and drug awareness, eldercare, physical fitness and wellness.

PS 92(2) ("WHAT SERVICES ARE NOT TAXABLE"): The environmental consulting services that involve the training of Company employees to conduct environmental audits intended to test the Company's compliance with federal and state environmental laws, the environmental compliance training services that involve the training of Company employees to ensure their compliance with federal and state environmental laws, and the safety training services that involve the training of Company employees to ensure their compliance with the Company's safety programs teach, maintain, upgrade or improve the specific skills required in the day to day job performance, and therefore is "job-related training," as defined in PS 92(2).

Issues Three and Four: While the Company generates hazardous waste in the course of its manufacturing activities, its core business activities are those "directly related to [its] lines of business involving sales of products, property, goods or services to others ...." Conn. Agencies Regs. §12-407(2)(i)(J)-1(h). Evaluating its internal environmental compliance or safety organization, evaluating the implementation and effectiveness of its environmental or safety programs, identifying and managing environmental hazards and risks that its manufacturing business may potentially cause, developing and implementing a program to manage and minimize its hazardous and solid wastes, and complying with federal and state environmental laws are not activities directly related to the Company's sales of manufactured products. On the contrary, these activities are similar to the activities not generally regarded as directly related to core business activities. See, e.g., Conn. Agencies Regs. §12-407(2)(i)(J)-1(h)(1), (2) and (8).

Nor does the evaluation of the Company's internal environmental compliance or safety organization constitute a human resource management activity, as defined in Conn. Agencies Regs. §12-407(2)(i)(J)-1(i).

RULING:

Issue One: Training provided to employees whose duty it is to train other employees constitutes the furnishing of advice and assistance on matters pertaining to human resource management activities. Conn. Agencies Regs. §12-407(2)(i)(J)-1(i).

Issue Two: Training provided to employees of a manufacturing business which generates hazardous wastes, to ensure compliance with federal and state environmental laws and with the employer's safety programs by such employees is job-related training, and constitutes the furnishing of advice and assistance on matters pertaining to human resource management activities. Conn. Agencies Regs. §12-407(2)(i)(J)-1(i).

Issue Three: Evaluation of the internal environmental compliance or safety organization or of the implementation and effectiveness of environmental or safety programs of a manufacturing business which generates hazardous wastes does not constitute the examination of data relating to (and the formulation of conclusions, and the making of recommendations based thereon), or the furnishing of advice or assistance on matters pertaining to, the management of core business activities or human resource management activities.

Issue Four: Furnishing of assistance to a manufacturing business which generates hazardous wastes in identifying and managing existing environmental hazards and risks, in staying in compliance with federal and state environmental laws, and in developing and implementing a program for the management and minimization of hazardous and solid wastes does not constitute the examination of data relating to (and the formulation of conclusions, and the making of recommendations based thereon), or the furnishing of advice or assistance on matters pertaining to, the management of core business activities.

LEGAL DIVISION

August 5, 1992