DoorDash is Subject to Business License Tax in Anderson, South Carolina

By: Jeff Glickman, SALT Partner

At a glance:

• The main takeaway: Despite no office or employees in the city of Anderson, the South Carolina Administrative Law Court ruled that DoorDash was subject to the city’s business license tax, which is measured by gross income.
• Assess the impact: The decision, which concluded that physical presence is not required, is potentially problematic and broader reaching for taxpayers that engage in remote sales to customers in particular local jurisdictions. 
• Take the next step: Taxpayers need to carefully understand whether their business has an obligation to pay local business license tax. Aprio’s State and Local Tax (SALT) team can help.

Schedule a free consultation today to learn more!

The full story

In state and local taxes, the local side is one of the most complex and frustrating areas for both taxpayers and practitioners. There are numerous reasons for this, such as:

• Difficulty in finding local ordinances and rules,
• Rules that are found are often unclear,
• A lack of interpretive guidance, and
• Difficulty obtaining assistance from local government agencies.

Nevertheless, there are thousands of local jurisdictions across the country, many of which impose taxes, and taxpayers need to understand whether they may have a local tax obligation. Recently, the South Carolina Administrative Law Court (ALC) issued a decision holding DoorDash liable for the City of Anderson’s business license tax.[1]

A closer look at DoorDash’s operations in South Carolina

DoorDash operates an online platform that facilitates the purchase and delivery of goods from participating restaurants and other merchants.  DoorDash manages the platform from outside of Anderson, South Carolina and it has no place of business or employees within the city. DoorDash has agreements with restaurants and other merchants located in Anderson, and the food and goods available from these restaurants and merchants are advertised through the platform. Customers can order and pay for goods from participating merchants through the platform. 

DoorDash also has agreements with local businesses or individuals, referred to as “Dashers,” that provide delivery services between the merchant and customer based on communications received through the DoorDash “Dasher App.” Dashers are designated as independent contractors by the parties through the Dasher contract. If a customer requests delivery, the platform identifies a Dasher who may then accept or decline the delivery. When a customer orders through the platform, DoorDash collects payment from the customer which is then transmitted to the participating merchant, minus commissions and fees.

During the period at issue, DoorDash had agreements with 94 restaurants within Anderson and had received gross income from transactions with those restaurants totaling $1.9 million in 2022 and $2.5 million in 2023. Based on this information, the city assessed DoorDash with over $18,000 in business license tax and penalties. DoorDash argued that it could not be required to pay the city’s tax because it did not have a physical presence within Anderson. The city countered that physical presence is not required, and even if it was, DoorDash has a physical presence within the city.  As summarized below, the ALC agreed with the City.

Unpacking the ALC’s ruling

Anderson’s business license tax is imposed on “every person engaged . . . in any business . . . in whole or in part within the limits of the City . . . .”[2]  The term “business” is defined as “business, calling, occupation, profession, or activity engaged in with the object of gain, benefit, or advantage, either directly or indirectly.”[3]

First, the ALC explained that the imposition statute supports a conclusion that physical presence is not required because the phrase “in whole or in part within the limits of the City” modifies the phrase “engaged . . . in any business” rather than modifying the term “every person.” The ALC relied on a 2011 case involving an out-of-state online travel company and whether it was responsible for South Carolina sales tax on furnishing accommodations based on a similarly worded statute.[4] 

Interestingly, DoorDash tried to distinguish that case since it dealt with sales tax as opposed to a gross receipts tax. In a footnote, the ALC concluded that such a distinction was immaterial, noting that the U.S. Supreme Court Wayfair decision addressed the administrative burdens of a sales tax prior to ruling that physical presence was not required. The ALC determined that business license tax has less administrative burdens than sales tax and stated that, “The elimination of [the physical presence] requirement in sales tax cases necessarily means that a physical presence is not required in cases with lesser administrative burdens.”

Second, in addition to its reliance on the Travelscape decision, the ALC analyzed the definition of the term “business” and that it can be engaged in “directly or indirectly.” Focusing on the term “indirectly,” the ALC stated:

[A] business without a physical presence in a particular jurisdiction but which generates revenue from that jurisdiction through the use of intermediaries does business indirectly in that jurisdiction. What other purpose could the term “indirectly” have if not to include within the City’s taxing authority businesses who do not themselves physically engage in commerce in the City but instead arrange for others to do so on their behalf?   

Based on this analysis, the ALC concluded that while DoorDash may not be doing business directly in the Anderson, it was doing business indirectly based on its agreements with the restaurants and the Dashers that were engaged in activity in the city on behalf of DoorDash.

Finally, the ALC rejected DoorDash’s claims that the application of business license tax in this manner violated the Commerce Clause of the U.S. Constitution. The ALC concluded that DoorDash had created substantial nexus within Anderson, and the decisions in Wayfair and Travelscape reflect that the courts are adapting to modern e-commerce business trends, like the model used by DoorDash.

The bottom line

The decision in this case presents a potentially problematic issue for taxpayers that engage in remote sales to customers in a particular local jurisdiction with a gross receipts business license tax similar to the City of Anderson. While DoorDash had established physical presence through the activities of the Dashers and restaurants located in the city, the decision itself is broader regarding the conclusion that no physical presence is required.

Aprio’s SALT team has experience analyzing local taxes, and can assist your business to determine if it has an obligation to pay a business license tax based on gross receipts. Our goal is to ensure that your business complies with its state and local obligations and does not incur unexpected liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

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[1] DoorDash, Inc. vs. City of Anderson, Docket No. 24-ALJ-30-0067-CC, S.C. Admin. Law Court, Feb. 7, 2025.

[2] City of Anderson Mun. Code. § 26-36.

[3] City of Anderson Mun. Code. § 26-37.

[4] See Travelscape, LLC v. South Carolina Department of Revenue, 391 S.C. 89 (2011), interpreting S.C. § 12-36-920(E).