Extras on Excise: Oregon Tax Court Rejects Quill Application to State 911 Emergency Surcharge


What qualifies as an excise tax differs from state to state; some excise taxes operate more like sales taxes (imposed on the retail price), and other states impose them on the manufacture, production, or distribution of products. Indeed, in some jurisdictions, the only difference between a sales tax and a particular excise tax is the name. Interestingly enough, a recent Oregon Tax Court ruling examined the similarities between one state excise tax and sales taxes, scrutinizing Quill’s physical-presence standard (most recently highlighted in the April 17 SCOTUS oral arguments for South Dakota v. Wayfair) along the way.

In Ooma Inc. v. Dep’t of Revenue, TC-MD 160375G (April 13, 2018), Ooma, a telecommunications service provider in California, protested collecting Oregon 911 emergency surcharges for Oregon subscribers on constitutional grounds. In addition to arguing a due process violation, Ooma’s challenge argued that the court should use Quill’s physical presence rule to determine that Oregon’s surcharge violates the dormant commerce clause. Quill applied, Ooma argued, because the 911 surcharge is a sales tax; alternatively, the company claimed that if the surcharge is not actually a sales tax, Quill should still apply because the surcharge operates like one.

The court determined that the surcharge is not a sales tax; it is a fixed $0.75 that “is not imposed on the purchase or sale of telecommunications services, but rather on those who have access to the emergency communications system through such services.” Additionally, the court found no legal precedent for deciding that any similarity between the surcharge and a sales tax required applying physical presence standards; instead, it cited to previous opinions that had refused to extend Quill to non-sales taxes.

Ultimately, Oregon’s requiring Ooma to collect and remit the surcharge was found constitutional. The court came to this decision using the four-part test in Complete Auto Transit, Inc. v. Brady that rules taxes violate the dormant commerce clause if they are applied to activities without a substantial nexus in the “taxing [s]tate”; unfairly apportioned; discriminate against interstate commerce; or are unfairly related to the services provided by the state. The court determined that because the emergency surcharges paid for Oregon 911 services, Ooma having to collect the surcharge payments passed muster under the fourth Complete Auto prong’s requirements.

Figuring out the difference between sales and excise taxes can be complicated. For example, organizations such as the Institute on Tax and Economic Policy and the Tax Policy Center label excise taxes as sales taxes: “sales taxes that apply to particular products” (Institute on Tax and Economic Policy) and “selective sales taxes” (Tax Policy Center). However, as the ruling in Ooma shows, the differences between the two types of tax matter.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How would you characterize the excise taxes that are imposed in your state? Do they resemble sales taxes or are there specific distinguishing features?

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