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October 1, 2023

Check Out Our Chat with Avalara, the Sales Tax Experts, About Digital Products Taxability

The following post is sponsored content by Shane Ratigan, Content Compliance Manager at Avalara. Check back here this Wednesday at 1 pm for a live chat with Avalara who will answer your questions. You can set up a reminder below.
You don’t have to be a SALT accountant to know that sales tax is the topic du jour amongst Congressional good fellows and itinerant gypsy song makers. Blame Amazon, or tax free online shopping, or your evil, bullying cousin Willis. 
But read on, CPA warrior, as we give you the 411 on the latest sales tax rigamarole. And then you, yes YOU, can sound smart and incisive as you pass along these gems to your clients. 
From gypsy to country, al- rock to techno-pop, the taxability of digital music and other products have neurotic (under 40) CPAs wringing tear-soaked handkerchiefs in life coach offices all along the West Coast. Can you hear them? They’re crying now. “How can I advise on digital product taxability, when states are a mess on the subject?” From the existential depths of the nearest CPA’s psyche, parsing statutory guidelines regarding digital goods taxability is as easy as getting your mini-pony to consume non-organic buckwheatwhich which, as we all know, is NOT EASY AT ALL.
In terms of sales tax compliance, digital goods are hot right now—states are debating definitions and the feds are considering uniform rules.  As consumers increasingly prefer to stream movies, or digital books, or — only God knows why — Taylor Swift tunes, states are under increased pressure to address this new tax puzzle. And fast. 
But good luck trying to parse which state requires sales tax on digital goods (goods which include everything from movies, to online games, to other streamed content). They don’t agree or have much consistency between jurisdicitons. And why should they? States cannot agree on candy taxability, or whether CPA services should be considered taxable. Why should digital goods be any different?
States like Washington define digital goods very specifically, while others barely spare a passing glance at the subject (we’re looking at you, New York). The states are arrayed on an arc of specificity, ranging from ‘not very helpful at all’ (NY) to ‘obsessively specific’ (WA).  
Other digital taxability approaches du jour among states:
  • some digital objects are tangible personal property; 
  • some digital objects are intangible software; 
  • or even that some digital objects are electronically supplied services.
For the first time in decades, the federal government might be able to dispel some of this confusion. The Digital Goods and Services Fairness Act, currently being considered in the House, would standardize definitions of digital objects across the U.S., while leaving the question of taxability up to the individual states.  The proposed law hews very closely to the Streamlined Sales Tax (SST) definition of digital objects and thus SST member states are least likely to be impacted by a possible passage of the law.
So put down those kerchiefs and carry on, CPA warriors! Every time a sales tax statute is changed, a bell rings. And every time a bell rings, your professional value is corroborated.

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