Reed Smith Client Alerts

The Supreme Court of Ohio issued a decision in Accel Inc. v. Testa, in which it determined that some of a taxpayer’s purchases of employment services were not subject to Ohio sales tax, because those purchases fell within an exception for service provided under permanent contracts of at least one year (“Permanent Exception”).1 The so-called Permanent Exception may provide an opportunity for any Ohio taxpayer purchasing employment services for a period of at least one year.


Ohio imposes sales and use tax on a taxpayer’s purchases of “employment services” from a service provider. However, unlike other states—including Pennsylvania—that only impose sales and use tax on the service fee, Ohio imposes tax on both any reimbursement of the wages paid to the supplied personnel by the service provider, plus any markup.2 Under O.R.C. § 5739.01(JJ), “employment services” are defined as: providing or supplying personnel, on a temporary or long-term basis, to perform work or labor under the supervision or control of another, when the personnel so supplied receive their wages, salary, or other compensation from the provider of the service.

By contrast, employment services do not include: acting as a contractor or subcontractor, Medicare and health care services, permanent contracts of at least one year (“Permanent Exception”), or members of an affiliated group supplying employment services to each other.