State Tax Snapshot: 2014 BBNA Survey to Address Sales Tax Nexus for Service Providers


Each year Bloomberg BNA asks state revenue officials to clarify their states’ approaches to the muddier areas of state tax law and publishes the answers in April in its Survey of State Tax Departments. This year BBNA is asking several new questions about sales tax nexus for taxable services. 

 Services in most states are generally not subject to sales tax unless they are specifically enumerated by statute. For instance, some states which generally exempt services from tax, impose sales tax on certain activities such as information services or repairs and installations.

One area for which there seems to be little guidance is the sales tax nexus implications for providing a service over state lines. A service could be performed in one state and then delivered to a customer located in another jurisdiction. It is clear that a vendor providing a taxable service must have a physical presence in a jurisdiction before it could be subject to sales tax.

But would the answer change if the out-of-state vendor performing a taxable service regularly sent employees into the taxing state on a regular basis to deliver tangible personal property that is incidental to the performance of the taxable servi ce?

The 2014 questionnaire will ask each state to specify if a finding of substantial nexus will result for an out-of state corporation that:

  1.  Repairs tangible personal property in another state and delivers it by common carrier to an in-state customer (assume the repair services are taxable in your state).
  2. Provides a taxable service to an in-state customer in which no part of the service, including the tangible personal property that is incidental to the performance of the taxable service, is physically transferred to the in-state customer.
  3. Provides a taxable service to an in-state customer in which tangible personal property that is incidental to the performance of the service is physically transferred (i.e., by common carrier) to the in-state customer.
  4. Transfers to an in-state customer, only by electronic means, documents that are incidental to the performance of a taxable service.
  5. Has employees that regularly (e.g., 12 or more times per year) enter the state to deliver to in-state customers tangible personal property that is incidental to the performance of a taxable service.
  6. Has employees occasionally (e.g., less than 12 times per year) enter the state to deliver to an in-state customer tangible personal property that is incidental to the performance of a taxable service.
  7. Stores tangible personal property with a third party in the state that is transferred to in-state customers as an incidental part of the performance of a taxable service.

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