Do you collect sales tax on digital downloads?

8 replies
More and more States are passing legislation to collect tax on "Products Transferred Electronically" .

For Utah it is:

Products Transferred Electronically

Electronic data is still taxable under Utah's new definition of products transferred electronically. A purchase of a product transferred electronically is taxable if a physical copy of the product would be taxable. For example, the purchase of a music CD is taxable, so downloaded music is taxable. Other examples include:

* Reading material
* Ring tones
* Software
* Movies

Wisconsin, North Dakota, North Carolina, and others have all passed similar taxing laws.

Here is an article about it:

More Digitial Download Taxes On The Way | Techdirt

This raises the bar a bit in selling eBooks, Videos, etc. Are you collecting tax?
#collect #digital #downloads #sales #tax
  • Profile picture of the author Anomaly1974
    Everyone should check with their local, state and federal laws regarding taxes as they will be different just about anywhere you go. One thing that is very common in many places with the VAT is adjusting the price so you still sell the product for seven dollars (As an example) but adjust out the price and still pay the tax. Regardless of whether you think you are collecting a sales tax or not, you may still be responsible for paying it in to the gubmint.

    As for the miranda rights you quote in your signature, they are actually now only required under federal law and not under local or state ... but that is just an observation and not relevant to the topic ... unless of course you are supposed to be paying taxes and are not.
    Signature

    “They did not know it was impossible so they did it”
    -Samuel Clemens" (As Mark Twain)

    {{ DiscussionBoard.errors[1213808].message }}
  • Profile picture of the author spearce000
    If you sell via ClickBank, 2checkout.com etc. they automatically add the VAT and other taxes at checkout, and pay them on so you don't have to.
    {{ DiscussionBoard.errors[1213876].message }}
  • Profile picture of the author Chris Thompson
    Yeah, it seems the best bet is to sell through a network like CB so you don't have to deal with this problem. Otherwise, I wonder how long it will be before some offshore middleman comes in and sets up a company where your product is sold through them, and you take 95% commission.

    I'm not saying it is right or wrong, but it is probably going to happen.

    Ever read "The Sovereign Individual"? Great book. Predicts this kinda thing.
    {{ DiscussionBoard.errors[1214292].message }}
  • Profile picture of the author MichaelHiles
    Big problem with this.

    "Technically" a digital product's point of origin is the server on which it resides.

    To the letter of interstate commerce, a digital product crossing political subdivision lines would not make the provider liable, just as if it's shipped in a box - unless there's a physical presence in the same state as the buyer.

    I think this is at the core of the problem between Amazon and the affiliates. The state considers a reseller affiliate a physical presence of the company. The company rejects the idea and further refuses to even spend the money in the state to defend it - leaving the shafted affiliates to fight it out politically.
    {{ DiscussionBoard.errors[1214607].message }}
  • Profile picture of the author Anomaly1974
    There are a couple of very interesting and key points so far in this conversation.

    Many STATES are passing laws.

    While I do not doubt the ability of many of the major sites like clickbank and others to deal perfectly well with national laws, I do doubt that they are set up to handle things on a more local level. What happens in places like Philly where there are separate city, county, state and federal taxes? That is why I suggested always getting proper legal advice though. While it can be a pain in the asterisk, it can be much less painful than the fines, fees and interest charges that can now be legally charged based on what the government believes you could have earned rather than what you actually earned. (Yes, it is legal for them to do that now)

    Big problem with this.

    "Technically" a digital product's point of origin is the server on which it resides.

    But the point of origin is not likely to be the issue that is being contested unfortunately. According to the federal government (FTC Laws) anything that has been transferred electronically via any means has been "presumed" to have crossed state lines and borders automatically putting any offense into the category of a federal crime ... in addition to the original crime. (For confirmation please see the FTC "Letter of Explanation" written in 1983 as well as USC Federal Regulations)

    Please do not think I am arguing against you here, only pointing out that it is always best to get sound legal advice. There are often times that facts and reality are less important in the case ... and in the penalties than what logic and common sense would normally dictate to a rational and reasonable person. There are often times local issues that can have a very real and very adverse impact on your business if you remain "blissfully unaware" of them.
    Signature

    “They did not know it was impossible so they did it”
    -Samuel Clemens" (As Mark Twain)

    {{ DiscussionBoard.errors[1214703].message }}
    • Profile picture of the author MichaelHiles
      Originally Posted by Anomaly1974 View Post

      There are a couple of very interesting and key points so far in this conversation.

      Many STATES are passing laws.

      While I do not doubt the ability of many of the major sites like clickbank and others to deal perfectly well with national laws, I do doubt that they are set up to handle things on a more local level. What happens in places like Philly where there are separate city, county, state and federal taxes? That is why I suggested always getting proper legal advice though. While it can be a pain in the asterisk, it can be much less painful than the fines, fees and interest charges that can now be legally charged based on what the government believes you could have earned rather than what you actually earned. (Yes, it is legal for them to do that now)

      Big problem with this.

      "Technically" a digital product's point of origin is the server on which it resides.

      But the point of origin is not likely to be the issue that is being contested unfortunately. According to the federal government (FTC Laws) anything that has been transferred electronically via any means has been "presumed" to have crossed state lines and borders automatically putting any offense into the category of a federal crime ... in addition to the original crime. (For confirmation please see the FTC "Letter of Explanation" written in 1983 as well as USC Federal Regulations)

      Please do not think I am arguing against you here, only pointing out that it is always best to get sound legal advice. There are often times that facts and reality are less important in the case ... and in the penalties than what logic and common sense would normally dictate to a rational and reasonable person. There are often times local issues that can have a very real and very adverse impact on your business if you remain "blissfully unaware" of them.
      I understand that it's not being discussed at present. But even your citation of the FTC letter further emphasizes the very real conflict between the efforts of states and the interstate commerce clause that direct mail catalog marketing has operated under for a very long time. The interstate commerce clause was adopted exactly for the very reasons that are now being escalated with states passing these conflicting, idiotic laws. New York wants me to collect sales tax from NY residents that buy things from me and send them the money. Come and get it. I am not domiciled in NY, have no physical presence in NY and any commerce I conduct with a resident of NY is governed by federal law via interstate commerce.

      The issue is being pushed and pushed, and what's going to happen is that companies will either be forced to only conduct business within state boundaries, forcing 50 state registrations for legal organization. Or, the supreme court will have to rule in the case enforcing the interstate commerce clause, or creating a separate distinction and classification of digital products. Of course, Congress could propose federal legislation that reclassifies digital commerce, but I don't see that happening.

      My money is on SCOTUS eventually ruling against the states.
      {{ DiscussionBoard.errors[1214822].message }}
  • Profile picture of the author intromaster
    Sooner or later, the government is going to try and find a way to get its hands on our money...there's just too much money flowing for them not to go this route.
    Signature
    PLR99 Announcement Club. Private label rights special offers EXCLUSIVELY to PLR99 club members only. My Own Material. You wont see anywhere else. FREE to join www.plr99.com


    {{ DiscussionBoard.errors[1214718].message }}
  • Profile picture of the author jacktackett
    in NC there are 2 different laws - one is about collecting sales tax, but its aimed at the big players like Amazon and Overstock. The response to the law was to simply kick all NC affiliates out of the program.

    The other one in NC is on downloads. If you sell a program/ebook/etc and you deliver it from your server - to a person in NC - you need to collect and remit sales tax. Now as Michael has pointed out - what if my server is in PA?

    Its a mess right now and I've got an appointment with my CPA to discuss. I need to file my quarterly sales tax return next week and I basically have no clue what I have to pay.

    It sucks more because I've done things online for the past 5 years but the NC tax department didn't have time to program in the new taxes/reporting online, so I'll have to fill out the online form - AND then some sort of extra form/sheet- I think an excell but could be a bloody text form for all I know - and send that in.

    Welcome to the 21st century in NC!!!

    I've also asked my legislatures (well those who haven't resigned recently) how much tax they've actually collected since passing the Amazon tax law - given there are no longer any affiliates in NC, thus no longer any Nexus criteria. My guess is -0- but no one has told me yet.

    Who needs the soap box next?

    --Jack
    Signature
    Let's get Tim the kidney he needs!HELP Tim
    Mega Monster WSO for KimW http://ow.ly/4JdHm


    {{ DiscussionBoard.errors[1215437].message }}

Trending Topics