I was asked this question yesterday, and I realized that it was one of them there frequently asked questions."In one example [in a webinars] you discussed how having an employee (even transient) within a state could cause nexus. Does the same apply to independent contractors? We have some sales representatives that are not employees, but who do call on and sell to our customers. Does this vary state to state?"
Yes, the same rule applies to contractors (non-employees). I've not seen any rulings that differentiated between employees and contractors. The real question is what the person is doing for you. If they are representing you and helping you get or close business in the state, that's enough. And no, it does not seem to vary from state to state. As I said, every state seems to treat contractors the same as employees.
One of the reasons for this, I think, is that many employers probably misclassify their contractors anyway. I used to teach a course on this and the rules are a lot stricter than you think. Most of the people that you consider contractors would probably be reclassified as employees if the right people audited you. Thankfully, the sales tax auditor doesn't care about this one. They treat contractors and employees the same when it comes to nexus.
By the way, the contractor doesn't even have to be an individual. If you've got manufacturers rep firms representing you, that can create the same problem.
The Sales Tax Guy
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1 comment:
Hi Jim,
You're right. States make no distinction between employees and independent contractors for purposes of sales tax nexus. This is because in Scripto, Inc. v. Carson, 362 U.S. 207 (1960) the U.S. Supreme Court ruled that for purposes of sales and use tax nexus specifying that a salesperson is "independent" (as opposed to a regular employee) is a distinction without constitutional significance.
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