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Tax Law

Oregon Tax Court Holds E911 Tax on VoIP Provider Does Not Violate U.S. Constitution

On March 2, 2020, the Oregon Tax Court held that the application of the state’s E911 Tax to a provider of interconnected VoIP services (“Taxpayer”) did not violate the Due Process and Commerce Clauses of the U.S. Constitution. The E911 Tax is imposed on each person with access to Oregon’s emergency communications system, whether through VoIP or through a wired or wireless telecommunications service. The Oregon Department of Revenue assessed E911 Tax on VoIP services for the quarters ending March 2013 through March 2016. Rather than challenge the taxability of the VoIP services, Taxpayer protested the assessment on Due Process and Commerce Clause grounds. The Tax Court succinctly rejected these arguments. First, the court held that the E911 Tax satisfied the Due Process Clause. Taxpayer had minimum contacts with the state. It purposefully availed itself of Oregon’s market based on the nature of its business as a seller of ongoing services, the number and dollar volume of its Oregon sales, and the pattern of its growth. And the E911 Tax was rationally related to values connected with Oregon. The tax revenue is spent to maintain Oregon’s emergency communication network, to which, by federal law, Taxpayer must provide its customers access. Second, the court held that the E911 Tax satisfied the Commerce Clause. Rejecting Taxpayer’s argument that the court should apply a physical presence nexus standard, the court held that Taxpayer had substantial nexus with the state because its annual Oregon revenue exceeded the $100,000 South Dakota threshold approved by the U.S. Supreme Court in South Dakota v. Wayfair, Inc. And the E911 Tax was sufficiently related to the services Oregon provides because the tax applies on a “per line” basis—finding there to be a strong connection between the number of lines and Taxpayer’s revenue. Ooma, Inc. v. Oregon Dep’t of Revenue, No. TC 5331 (Or. Tax Ct., Reg. Div. Mar. 2, 2020).