Washington Plays the Name Game: Domain Name Registration Services Are Subject to Sales Tax

The State of Washington Department of Revenue issued public guidance explaining that the initial sale of a domain name by a registrar is subject to retail sales or use tax. A domain name is a unique name that allows users to access a website without using the website’s Internet Protocol (IP) address. Individual users cannot access the global domain name clearinghouse, but instead must use a third-party domain name registrar to purchase a domain name. Under Section 82.04.050(8)(A) of the Revised Code of Washington (Code), taxable retail sales include sales of digital automated services to consumers. A digital automated service is defined under Section 82.04.192(3) of the Code as “any service transferred electronically that uses one or more software applications.” In a prior determination, Det. No. 11-0081, 32 WTD 46 (2013), the Department determined that domain name registration services are digital automated services because the registrar transfers the domain name to the purchaser electronically. In this guidance, the Department makes clear that the initial sale of a domain name by a registrar is a digital automated service subject to retail sales and use tax. Washington Department of Revenue, Tax Topics: Domain Name Registration Services (May 7, 2015).

Notification of changes regarding NYS Department of Tax and Finance ACH Debit Payments

See our Web site for details: www.tax.ny.gov/pay/all/debit.htm

We are changing our bank accounts.

If you (or your client) authorize the NYS Tax Department to deduct payments from a bank account and there is a debit block on that account:

  • Contact your bank to add our new company IDs and names to the bank account.  Do not remove the old company ID.
  • Add the new information for each type of payment you make.  Each payment type, including unemployment insurance, has its own company ID and name.

You must do this by June 25, 2015 for future payments to be successful.

The New York State Tax Department will never contact you by email to ask you to validate personal information such as your username, password, or account numbers.

Florida Says Uber Drivers Are Employees, But FedEx, Other Cases Promise Long Battle

Uber promises good open-ended pay, flexible hours, even discounts on vehicles. But employee status? No way. Health and dental coverage? Tax withholding? Nope. Darrin McGillis was a driver in Florida who was in a car accident so could no longer pick up passengers. Buzzfeed reported on the case in which McGillis couldn’t get Uber to help, so he filed for unemployment. Hey, I qualify since I’m effectively an employee, McGillis claimed.

Sure enough, the Florida Department of Economic Opportunity agreed with him that he was actually an employee. Predictably, Uber disagrees with the decision and will surely fight it vigorously. A separate report on McGillis’s case in The Miami Herald notes that Uber has managed to get similar state decisions overturned. Although the case only involves one Uber driver and in Florida at that, this case and the inevitable others like it will be watched. Recently, a survey showed that contract workers for Uber and numerous other companies don’t get benefits and have trouble getting them on their own.

Although this is just one specific case, and only in one state, the battle over the independent contractor versus employee designation has been underway for decades, and extends beyond ride-sharing companies. It’s been a long-running issue at FedEx, which operates with a similar contractor setup with its ground delivery drivers. That’s brought class-action lawsuits, and efforts to change state laws to put liabilities on the companies.

Uber and its competitor Lyft now face similar suits over whether the two companies (and others like them) should be footing the bill for things like gas and vehicle maintenance. Uber’s latest $1.2 billion in financing and more than $40 billion valuation make it a valuation darling, but it’s PR problems are huge. It seems often to ruffle rather than smooth feathers. As it fights regulatory and public relations battles, are tax authorities going to crack down too? It isn’t just the ubiquitous IRS that may want to hitch a ride to cash in. Consider state tax agencies and even some foreign ones.

It is a tech company, it claims, and just takes a fee for putting passengers and drivers together. Clearly, these drivers aren’t employees of the car services–er tech company–at least on paper. Besides, neither the company nor the drivers are likely to even think there is an employment or agency relationship viz. third parties. Or is there?

Some Uber drivers have sued claiming the company takes too large a cut of tips. An even bigger legal exposure is accident liability, and there are already some big cases involving injuries and even death. When a driver has an accident that injures the passenger or a third party, there is recourse to the drivers and their insurance.

Yet a serious or fatal accident can involve millions, far exceeding driver insurance policies. Uber is a clear target, unless the Communications Decency Act of 1996 prevents liability. But it is not far-fetched to imagine verdicts for injured plaintiffs, no matter how the legal niceties are observed. With taxi companies and in many other industries, the law has been sorting out similar issues for decades. The contracts and the actual course of conduct of the parties are likely to count.

Independent contractor vs. employee characterization questions span medical malpractice cases, tax disputes, worker compensation and unemployment matters and more. Even employment discrimination and sexual harassment cases. As many tax, employment, insurance and labor disputes reveal, workers labeled as independent contractors may be employees. Arrangements can be genuine or can be independent in name only, with no chance of standing up against the IRS, other agencies or the courts.

And who might be even more aggressive in collecting than accident victims? Taxing authorities. The IRS and state taxing agencies could benefit nicely by getting tax withholding money from Uber on pay to the drivers. And while it is by no means certain that the IRS and state tax agencies will not make a grab for it, it is also not certain that they will not.

After all, look at some companies as FedEx, which has for years fought vigorously to defend its independent contractor method of operation. The delivery giant mostly won, until a key Ninth Circuit ruling that FedEx misclassified its drivers as independent contractors.

Usually, an agency requires a principal and agent like an employer and employee. And the agencies might not be able to stand up to the Uber powerhouse. Yet even franchise operations have sometimes succumbed to recharacteriation battles. Take Domino’s Pizza, where each store is independently owned, but a $32M verdict says there can still be liability to the company.

With Uber’s vast valuation, expect more lawsuits, whatever the drivers may be called. As with franchises, Uber may test the legal limits, but consider such basics as:

  • The employer’s control over the worker;
  • The worker’s opportunity for profit or loss;
  • The worker’s investment in facilities;
  • The worker’s skill set; and
  • The duration of the relationship.

If a driver must obey many rules and is subject to the control of Uber, a court could find employee-employer liability. So could a taxing agency. Workers may be labeled as “independent contractors,” but labels aren’t enough for the IRS.

Uber have roiled the marketplace. But taxing and employment agencies that stand to make money off employees and not off independent contractors are likely to be watching. In that sense, all of the upheaval isn’t over. Uber may be making itself more and more attractive as a target with a very deep pocket.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Colorado REAL Property Tax Assessment Appeal Deadline – June 1, 2015

This is a valuation re-assessment year in Colorado! – Taxpayers are seeing as much as 25% – 50% increase in their assessed values.  With the statewide reappraisal occurring once every two years, 2015 is an important year to make sure your property taxes are fair and equitable. Increased valuations, means increased taxes!

The process of filing an appeal can sometimes be online, such as the Denver County Assessor’s website.   After an appeal is filed, an appraiser with the County will review and determine if a reduction is warranted and notify the taxpayer of its determination.  While timing varies by county, typically review is completed by the end of June or August.  If the taxpayer believes that after review – the reappraised value is still excessive, the next step is to file to the County Board of Equalization by July 15 or September 15, depending on the County.  If you need help through any part of the process, let the team at Eide Bailly know and we can direct you to a team that can help with property tax representation or an appeal.

US Supreme Court – Absence of credit against Maryland’s local portion of personal income tax for out-of-state income taxes paid is unconstitutional

In a 5-4 decision, the United States Supreme Court found that the absence of a credit against the local portion of the state’s personal income tax, with respect to tax paid to another state on pass-through income from an S corporation, was unconstitutional. Maryland’s tax scheme failed the dormant Commerce Clause’s internal consistency test because if every state adopted the scheme, interstate commerce would be taxed at a higher rate than intrastate commerce.

The Court further held that the tax is inherently discriminatory and operates as a tariff.

The Court rejected assertions that it reach a different result because applicable Supreme Court dormant Commerce Clause authority involves corporate gross receipts taxes. The Court provided that its conclusion was not affected by the fact that the instant case involved a state’s personal income tax.

The Court also recognized that although Maryland may have the power to impose the tax under the Due Process Clause, the tax may still violate the Commerce Clause if it impermissibly burdens interstate commerce.

Accordingly, the Court affirmed the Maryland Court of Appeals decision in favor of the taxpayers. Read more

US Supreme Court – Failure to provide credit to Maryland’s local portion of personal income tax for out-of-state income tax paid is unconstitutional

In a 5-4 decision, the United States Supreme Court found that the absence of a credit against the local portion of Maryland’s personal income tax, with respect to tax paid to another state on pass-through income from an S corporation, was unconstitutional. The tax failed the dormant Commerce Clause’s internal consistency test because if every state adopted Maryland’s tax scheme, interstate commerce would be taxed at a higher rate than intrastate commerce.  The Court noted that a Maryland resident earning income outside the state would experience double taxation due to paying tax in his state of residence and in the state where income is earned.

The Court further held that the tax is inherently discriminatory and operates as a tariff.

The Court rejected assertions that it reach a different result because applicable Supreme Court dormant Commerce Clause authority involves corporate gross receipts taxes.  The Court provided that its conclusion was not affected by the fact that the instant case involved a state’s personal income tax.

Accordingly, the Court affirmed the Maryland Court of Appeals decision in favor of the taxpayers.

A more detailed analysis will be forthcoming. Read more