Otherwise taxable “employment services” are exempt if the personnel are assigned to the purchaser on a permanent basis under a one-year contract. This does not mean the individuals must work for the purchaser forever (or even continuously during the one-year term), but only that each leased employee is intended to be used for an indefinite period of time (i.e., no contemplated ending date).  Thus, the employee cannot be provided as a substitute for an individual on leave or for seasonal or project work.  This issue is particularly relevant in the construction industry since the Ohio Tax Commissioner assumes all construction work is seasonal, precluding permanent assignment of such employees.  However, there clearly is permanent assignment in the construction industry when the leased personnel are intended to move from project to project.

In order to qualify for this exception, a written contract must reflects the necessary “permanent assignment” language.  The contract must have a one-year term, preferably with annual renewals.  However, the authorities have respected contracts as being one-year contracts even though they are terminable upon 30 days’ notice (and possibly even if they do not last for a year as long as the termination was not contemplated from the beginning of the arrangement).

Additionally, performance under such contracts must be consistent with permanent assignment.  Manifestations of such an intent are typically illustrated with a graph of the total number of leased employees, reflecting a constant or increasing level of employment of leased employees during the relevant time period.  Each employee’s employment would also be charted to illustrate consistent assignment (with an allowance for natural turnover).

Finally, if any leased employees are contemplated to be provided on a non-permanent basis, a separate contract can be used for their retention so as not to taint the exempt, permanently assigned employees.  The Ohio Tax Commissioner has taken the position that non-permanently assigned employees provided under a “permanent assignment” contract makes the entire contract taxable.  Although this position has been met with opposition, the issue has not been addressed by an Ohio court yet. Nonetheless, one can simply avoid the issue by having two separate contracts.