The Direct Selling Association’s Legal and Government Affairs staff has been working on two state issues affecting the industry – an issue regarding unemployment compensation in Oregon and a franchise and income tax nexus issue in Wisconsin.

Oregon – Unemployment CompensationPursuant to Oregon Revised Statute 657.040(1)

Services performed by an individual for remuneration are deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the Director of the Employment Department that the individual is an independent contractor, as that term is defined in ORS 670.600.

Unless a person falls within the definition of an independent contractor under Or. Rev. Stat. 670.600 or a specific exemption applies to the individual, that person is considered an employee eligible for unemployment compensation. Oregon law provided a specific exemption applicable to direct sellers for individuals whose “compensation consists of commissions, overrides or a share of the profit realized on orders solicited or sales resulting from the in-person solicitation of orders for and making sales of consumer goods in the home.” See Or. Rev. Stat. 657.087(2) (emphasis added).

Two DSA member companies have received determination letters from the Oregon Employment Department indicating their sales force members do not meet the standards set forth for independent contractors under Or. Rev. Stat. 670.600 nor do they fall within the employee exemption under Or. Rev. Stat. 657.087(2). The Employment Department stated that because the DSA member companies are selling services and not consumer goods, the exemption under Or. Rev. Stat. 657.087(2) is not applicable to the companies. According to the Employment Department, the sales of services should be segregated from the sales of consumer goods. Based on that segregation of sales, a direct selling company could be liable for payments into Oregon’s unemployment compensation fund based on sales of services.

Further, the Oregon Employment Department also has taken the position that any sale of consumer goods that takes place outside of a home does not fall within the employee exemption under Or. Rev. Stat. 657.087(2). This means that direct selling companies could be liable for payments into Oregon’s unemployment compensation fund based on any sales made outside of a person’s home.

At least one DSA member is engaged in litigation with the Oregon Employment Department regarding their interpretation of the state’s unemployment compensation statutes. In addition to sending a letter to the Oregon Employment Department describing the direct selling industry and its use of independent contractors, DSA staff testified via telephone on behalf of the direct selling industry and discussed industry practices. The litigation is ongoing.

During its upcoming strategic planning meeting for the 2013 legislative session, the Government Relations Committee will be discussing the opportunity to pursue an amendment to the Oregon direct seller exemption to expand it to include the sale of products and services and eliminate the restriction that such sale must take place in the home.

DSA staff will continue to communicate with members who receive similar determination letters from the Oregon Employment Department and help coordinate efforts between members to send a uniform message to the Employment Department.

Wisconsin – Franchise and Income Tax NexusDSA was informed by two member companies that the companies received determination letters from the Wisconsin Department of Revenue stating the companies are subject to a Wisconsin corporation franchise and income tax filing requirement because their Wisconsin business activities exceeded the minimum standards established by Public Law 86-272.

Public Law 86-272 prohibits states from taxing out-of-state corporations on income derived from business activities within the state if the corporation’s activities are limited to “mere solicitation of orders” for the sale of tangible personal property and the orders are approved and filled from outside the state. Wisconsin Administrative Code 2.82(4)(12) provides that engaging in substantial activities that help establish and maintain a market in Wisconsin is a nexus creating activity and shall be subject to Wisconsin franchise or income taxes.

The Wisconsin Department of Revenue indicated they believe the companies in question exceeded the protections afforded by Public Law 86-272 and have a nexus with Wisconsin under Wis. Admin. Code 2.82(4)(12) by not only soliciting orders, but also initiating exchanges of non-defective products, accepting payments and securing deposits on sales.

This interpretation could be of concern to other direct selling companies with distributors who make sales in Wisconsin. DSA will be communicating with the Wisconsin Department of Revenue to provide information regarding the direct selling industry and seek clarification regarding the Department of Revenue’s statutory interpretations. In addition, DSA will reach out to Governor Walker’s staff to seek their support for our position. If efforts within the executive branch are not fruitful, the Government Relations Committee will discuss opportunities to address this issue on a legislative front during their upcoming strategic planning meeting.

If you have received a determination letter from Oregon or Wisconsin or another jurisdiction, please contact John Webb at jwebb@dsa.org or 202-416-6410. We are helping members coordinate efforts and we can put you in touch with companies that have had similar experiences. We will continue to update you as these issues progress.