Internet Does Not Equal No Tax

An online subscription services provider requested the South Carolina Department of Revenue to rule on the taxability of internet-based platforms on which their customers stream videos, listen to music, and play online games. The taxpayer offers subscription services at a standard monthly fee depending on usage amounts and type of package. South Carolina rules that because the subscriptions or services were online activities they are still subject to tax under the communication business class.

Sales tax rules for online transactions and internet-based companies can be confusing. Contact our state and local tax team to make sure you remain in compliance.

New Idaho House Bill 598 Exempts Cloud Computing From Sales and Use Tax

Motivated by a desire to attract new “high-tech” businesses and add higher quality jobs to their economy, Idaho has enacted House Bill 598. Effective July 1, 2014 cloud computing services will no longer be subject to sales or use tax.

During the signing ceremony, the Governor explained the purpose of the bill, saying “services are not taxed in Idaho” and that the bill was intended to recognize that “services delivered through the internet are no different.” Thus, the law is intended to clarify that internet based software services are considered services, not tangible personal property and as such are exempt from sales and use tax.

As written, the bill exempts the following software services from sales and use tax:

• Computer software that is delivered electronically;

• Remotely accessed computer software (what is commonly referred to as “software as a service” or SaaS); and

• Computer software that is delivered by the load and leave method where the vendor or its agent loads the software at the user’s location but does not transfer any tangible personal property containing the software to the user.

However, digital music, books, videos (unless live streaming) and games are not exempt from sales tax under the new law. Although level of uncertainty still exists regarding the Idaho Department of Revenue’s interpretation and enforcement of the new law, the law still represents a significant step in Idaho’s tax reform process.

Resistance To Tech Tax/Service Tax!

This article from USA Today outlines the problems that states are having keeping up with an economy that is ever shifting from industrial and products based to technological and service based. States are running into resistance as they attempt to implement new technology taxes and service taxes.

This resistance is best illuminated by the backlash the Massachusetts legislature experienced after it passed a sales tax on tech services. The 6.25 percent tax was designed to pay for roads, subways, buses and bridges. But after it passed the tech industry heavily lobbied, and the tax was repealed.
The article also points out that most states do not tax services, and that the taxation of consumer goods can only go so far.

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