The new frontier in taxes is digital content and conformity. Determining what is taxable and what is not is difficult. Every State is different. Is a downloaded book the same as a physical book that you purchase? What about downloadable music or video games. States would say yes. Especially if you have a physical location in the State where the end-user lives. The issue with the internet sales becomes where does the sale take place. Does the sale take place where the seller is located or where the buyer is located? Does it take place somewhere else other than where the buyer or seller is located?
Some States say that downloadable content is taxable while other States say that it not. However, more and more States are re-evaluating their tax laws as they begin the Sales Tax Initiative (SSTI). The Streamline Sales Tax Initiative is an initiative that the States have initiated to rewrite the regulations and definitions to bring conformity to what is taxable and not taxable.
Once the States have completed the initiative, their goal is to have Congress pass legislation to make sellers subject to sales tax collection whether or not the seller is located in the State where the consumer is located. In Tennessee, specific downloaded content may be taxable; whereas, is Illinois, it may not be taxable.
Tennessee this week just ruled that downloaded content where consumers pay to download information from a downloadable encyclopedia or dictionary is subject to sales tax. Colorado on the other hand has issued rulings indicating that some downloadable content is not taxable.
Currently, if a consumer is not located in the State of the Seller who has a physical presence, the seller will often not collect or remit sales taxes at the time of purchase. The consumer is to report use tax to the State based on the purchase price if sales tax is not collected at the time of purchase. Some States have gone so far to put a line on the individual income for collecting use tax.
Sales tax conformity is the new frontier in taxes when it comes to sales and use tax collection, reporting and remitting.
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