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?
Get a free trial to Bloomberg Tax: State, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)