Tag Archive for Taxing Digital Goods

The OECD v. Tax Havens: Part IV – The Digital Economy

The current tax rules underpinning practically every tax code around the globe are derived from a “bricks and mortar” or manufacturing based economy. What this means is the underlying concepts were developed when all world economies were based on building physical products that were bought and sold (think industrial revolution). For example, the tax treaty phrase “permanent establishment” was actually developed by League of Nation’s negotiators during their preliminary discussions to develop a working tax treaty framework. Compare this to today’s digital economy where “products” are actually multiple lines of computer code that exist in cyber-space (or a trademark or patented item) or where a “store front” (the old “permanent establishment”) is in fact a web site located halfway around the globe on a server in a tax haven. This mismatch between the underlying concepts of the old Read More

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Avoid Challenges Taxing Digital Goods

TaxConnections Picture - eBookFor a number of years, I have been promoting broadening of state sales tax bases to include 21st century types of consumption, such as iTunes, ringtones and digital books. The broadening though, should not include items purchased by businesses in order to avoid pyramiding.

This year, Minnesota enacted legislation, effective 7/1/13, to broaden its sales tax base to include many types of digital goods. One of the exemptions provided is for textbooks and other instructional materials that students are required to purchase. But to get the exemption, the student has to provide the seller with the Form ST3 exemption certification (see the excerpt above of this 1 page form with 5 pages of instructions, which do not yet cover textbook purchases).

So, imagine a Minnesota college student deciding to be green and save money and buys the digital version of her textbook. If the seller is subject to Minnesota sales tax collection, they need to charge the sales tax unless the student provides the exemption certificate. How is that to be done for this electronic transaction? Hopefully, e-vendors subject to Minnesota sales tax collection have an online form for the students to use. Will students appreciate the significance of completing such a form?

If the seller is not subject to sales tax collection in Minnesota because they have not physical presence there (and have not voluntarily registered with SSUTA states since Minnesota is a member), does the student need to let the state know the purchase is exempt from use tax? If yes, how? Read More

Written by | Posted in Individual • State And Local Tax (SALT) • Tax Education • United States