Quill Nexus Test Not Extended to Oregon 911 Tax on VoIP Providers (Part 1)

We have written many recent blogs on the sales and use tax (SUT) physical presence nexus issues posed by Quill (Quill Corp. v. N. Dakota, 504 US 298) and being revisited by the Supreme Court in Wayfair (South Dakota v. Wayfair, Inc., cert. granted 1/12/2018, No. 17-494) (see, e.g., our most recent blog on the Supreme Court oral arguments in Wayfair [S. Dakota v. Wayfair – Insights from the Oral Arguments].  Other separate blogs have discussed various aspects of the taxation and regulation of telecommunication companies, especially VoIP providers [VoIP: Telecom or Information Service?] Wouldn’t you know it, a company in Oregon (Ooma Inc. v. Oregon Department of Revenue, TC-MD 160375G) that sells a VoIP service, has recently tried to put the two together by applying the Quill nexus standard to a telecommunications 911 tax to avoid having to collect and remit the 911 tax.  The amount of the tax at issue is around $300,000 before interest and penalties.

At the risk of oversimplification, basically what VoIP provider Ooma asked the court to do is take the holding and reasoning in Quill, replace the words “sales tax” or “use tax” with the term “911 tax” and arrive at the same conclusion as in Quill—that a so-called bright line “physical presence” standard must be applied to providers of the 911 tax service.  By applying that test, it believed that it could avoid collecting and paying over the 911 tax.

When the dust settled, the court disagreed with Ooma’s “substitution” theory and held that the Quill physical presence nexus standard does not apply to the 911 tax.   This result comes as no surprise to those who carefully follow both the SUT and 911 rules.  However, more importantly, in reaching its conclusion, the Court provided useful insights into the nature of the 911 tax— it is not a sales and use tax and does not even mimic one; it is more like a user fee that resembles a flat-fee highway tax.   Such a framework may be useful for companies and their advisors to consider in current and future tax planning and compliance transactions involving telecommunication taxes like the 911 tax.  Watch for our next post to learn more…


Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email: jerry.nestor@wolterskluwer.com

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