States taxing "digital goods"

[unixronin]

States have figured out that people are spending money to buy digital “goods”, and naturally they want “their” share.

Including Mississippi, at least 18 states claim they have the authority to collect taxes on digital goods, and more are likely to join them.

On March 12, a bill was introduced in the North Carolina general assembly “to modernize the sales and use tax statutes by treating music, movies, books, and computer software that are delivered electronically the same as those that are purchased in a tangible medium.”

A digital goods tax measure was also introduced in the Minnesota House of Representatives in late March.  The bill could raise the state more than $8.2 million in 2010 through 2013, according to the Minnesota Department of Revenue (PDF).

Comments

[ithildae.livejournal.com]

The sticking point is; What is the point of presence for the sale?

If the vendor has no physical presence in the state, do they need to deal with the state taxing authority? In today's legal framework, a vendor needs a physical presence in the state before it applies that state's taxes. What effect will any changes have on mail order sales? Do I get charged taxes if I order online, and not get charged if I mail in the order? How about email? Where does the actual transaction take place? At my computer? At the server location? At the warehouse location? At the business HQ location?

Right now, the set of Commerce laws governing interstate transactions has no definitions to resolve any of those questions. How many states are going to demand payment for the same transaction?

OTOH, the states reserve the right to tax transactions that take place in their state. They are also supposed to get taxes for transactions that are made in other jurisdictions, if the transaction taxes are not collected in that jurisdiction. (Everybody usually ignores that part of the law. There is no practical way of enforcing it.)

In spite of what the states are hoping, this is not a quick fix for their budget shortfalls. It will take several years in the federal courts to resolve the issues involved. It will likely cause several small businesses to fail before it is resolved, so this is yet another way to help the working man by damaging their employer. At least the lawyers will make money on it for several years.