Today, many higher education institutions are providing virtual classes and other educational services for students who are not physically on campus, and employees may be providing these services from a variety of remote locations. This raises a number of state and local tax questions, and when students and employees are located overseas, a host of additional tax issues may surface, including:
- Employment and benefit taxes in the jurisdictions in which employees are located
- State sales and use taxes in jurisdictions in which students are accessing online educational goods and services
- Application of value-added taxes and digital services taxes in countries where students attend online classes and engage in other educational activities virtually
- Income tax implications-- in multiple states and foreign jurisdictions-- for both employees and the institution
Tax considerations when providing educational services virtually
State and Local Taxes
Professors, staff, and student employees now working outside the state or city in which they regularly work may create tax issues for the institution as well as themselves. Institutions should assess their potential responsibilities as operating institutions and as providers of potentially taxable goods and services.
In many jurisdictions, the provision of digital services by a non-resident organization to individuals resident in the jurisdiction may trigger an obligation to register for, collect, and remit value-added tax (VAT) or goods and services tax (GST) with respect to those services.
Digital Services Tax
An increasing number of countries are imposing a digital services tax (DST) on non-residents who provide to their residents electronic goods and services. Some new or newly expanded DSTs may reach educational institutions that provide online courses and other educational services and materials.
Institutions may need to consider whether the presence of employees working abroad creates a taxable presence for the institution. In addition, an institution may have withholding or other tax obligations in countries where employees reside.
All of an institution’s operations are ultimately reported on their annual Form 990. Activities outside the US, including grants made to students residing abroad and employees working in other countries, must be separately reported.