Ohio's highest court rules third-party employers must pay sales tax.

• Position: Ohio

The Ohio Supreme Court has ruled that companies acting as third-party employers of record for businesses that do not want to operate their own human resources departments are required to pay state sales tax. Employees assigned to clients on a permanent basis are exempt from the ruling.

The case involved H.R. Options Inc. (HRO), a California-based firm that employs person who actually work for HRO clients. The unanimous decision overturned a Board of Tax Appeals ruling that had declared HRO as not falling under the legal definition of an "employment service" and therefore not subject to state sales tax.

However, employment services may be excluded from taxation if their contracts with clients specify that each employee covered was assigned...