“In this world nothing can be said to be certain, except death and taxes,” Benjamin Franklin famously penned in a 1789 letter to French scientist Jean-Baptiste Le Roy. While it may be true that some form of government taxation is inevitable, there can be a lot of uncertainty when it comes to which parties are subject to taxation at the state level. This can get particularly tricky in areas of sales and use tax nexus and a state’s treatment of tax collection in the sharing economy.
In today’s economy, the age of internet shopping, outdated tax rules are causing problems for states that wish to tax goods sold into their state. Online companies, such as Amazon.com, profited enormously from these rules as they have allowed them to undercut brick-and-mortar stores’ prices by avoiding sales taxes in some states.
The cornerstone rule governing the imposition of sales and use taxes was established by the U.S. Supreme Court in Quill Corp. v North Dakota, decided in 1992. In Quill, the court held that, in order for a state to have sufficient nexus with a taxpayer to constitutionally impose a sales or use tax, the potential taxpayer must have a physical presence in the state.
The question then becomes: what activities constitute physical presence? States vary greatly when answering this question. In order to help provide an answer, Bloomberg BNA publishes its annual Survey of State Tax Departments, which asks state tax departments various questions, the responses to which guide taxpayers through these murky areas of the law.
For example, while a majority of states indicated in this year’s survey that an employee’s attendance at a trade show or seminar was insufficient to create nexus with the state, a majority also answered that a company’s holding of two, one-day seminars is enough physical presence to create nexus.
For the sharing economy, which includes ridesharing services, such as Uber, and home sharing services like Airbnb, the main issue that arises is who is responsible for collecting sales and use taxes: the third-party facilitator (i.e., Uber) or the owner (i.e., the driver)? There is no easy answer, as the answer varies by state and by service.
The answers to these questions and more will be published on April 28, 2017 in the 2017 Survey of State Tax Departments. A free copy of the survey can be downloaded here.
For additional coverage of the 2017 Survey of State Tax Departments results, be sure to register for Bloomberg BNA’s upcoming webinar on May 24th.
Continue the discussion on BNA’s State Tax Group on LinkedIn: Do you feel the U.S. Supreme Court should hear a case on these issues to provide states with some clarification regarding nexus?
For more information about state tax issues, sign up for a free trial of Bloomberg BNA’s Premier State Tax Library.
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