Taxing on-demand snow removal services – Wacky Tax Wednesday

Winter Storm Stella struck much of the Midwest and East Coast last week with the desperate intensity of Marlon Brando crying out for the storm’s namesake. And just like Vivien Leigh in “A Streetcar Named Desire,” some felt awed and maybe a bit helpless in the face of its force. Fortunately, for those too stunned, busy, or tired to shovel their way out of their homes, the “Uber of Snowplowing” was available in some areas hit hard by the storm.

This is news to me, and although I’m more apt to need the “Uber of Water Taxis” than snowplow services where I live, I need to know more about the business billing itself as an on-demand solution for the “most burdensome home chores.”

Plowz&Mowz cleverly combines the business model pioneered by transportation network companies (TNCs) with snowplow and lawncare businesses. Instead of contracting with a business to plow your driveway every time it snows (or mow your lawn weekly after the snow melts), you use it the way you use a ride-hail service like Uber or Lyft — when you need it.

This is a relatively new business model that doesn’t fit tidily into existing tax law, much like other technological advances.

For example, digital goods and services defy easy categorization and therefore challenge existing tax laws. An ebook can’t be touched, felt, or moved, so it isn’t taxable tangible personal property; in many states, therefore, ebooks are exempt. But since their physical counterparts are taxable, a growing number of states are adapting their laws to tax ebooks, as well as digital music and streamed movies.

Ride-share companies face a similar situation. Clear tax policies and even business requirements for Uber, Lyft, and other transportation services are lacking in many parts of the country — a fact which has been protested by taxi drivers around the world. Gradually, that situation is being rectified.

Nevada created a new classification for TNCs in 2015 and levied an excise tax on their services. Rhode Island clarified their law and started taxing TNCs on July 1, 2016. A special 20-cent tax per trip now applies to Uber and Lyft rides in Massachusetts, where local sales tax may also apply. And in New York, where Uber lobbied for its services to be excluded from sales tax like other New York City-based livery-car services, its drivers must collect sales tax on intrastate trips by vehicles affiliated with Black Car bases.

Traditional snowplow services are subject to sales tax in Washington D.C. and several of the states struck by Stella, including:

• New Jersey
• New York
• West Virginia

Snow removal services are exempt in Maine, Massachusetts, Minnesota, New Hampshire, Pennsylvania (unless removing snow from a roof and gutters) Rhode Island, Vermont, and Virginia.

The taxability of snow removal services is less straightforward in Ohio. If snow removal is “by any mechanized means,” it’s taxable if the service provider makes at least $5,000 in sales during a calendar year. Businesses that make less than that in sales are exempt no matter how they remove the snow (by machine or hand). Snow removal by non-mechanized means (i.e., a shovel) are always exempt. Connecticut has a similar policy: Snow removal services are taxable, “except the casual and occasional sales of snow removal.”

In Wisconsin, where lawn maintenance services are taxable and snow removal services are not, the tax law accounts for the fickleness of Mother Nature: “When a service provider provides both taxable lawn maintenance services and nontaxable snow removal services for a single monthly fee, the service provider should make an allocation between the taxable and the nontaxable amounts.”

So where does that leave the on-demand snow removal services offered by Plowz&Mowz? Are they taxable or exempt?

Unless and until states and cities specifically address the taxation of on-demand snow removal services, it’s best to follow tax rules pertaining to snow removal in effect in the cities where Plowz&Mowz operates. According to the business’s terms, customers will pay “the applicable amount, plus applicable sales tax, up front.”

Tax policies and business requirements for TNCs have come under fire largely because businesses being displaced by these services (i.e., traditional cab services) have complained. If traditional snow removal and lawncare providers feel displaced by on-demand snow removal and lawncare, they, too, may draw the scrutiny of state and local officials. Alternatively, they could update their mobile phones and become service providers themselves.

There’s no stopping innovation. Tax automation software helps ensure that businesses correctly apply tax to new and traditional services in all states. Learn more.