By Joni Johnson-Powe, JD, CPA CEO/Founder – iAccountOn
On Friday, a law suit was filed challenging the Chicago “Cloud” Tax. If you hadn’t heard, in July 2015 Chicago “interpreted” its current 9% amusement tax to include electronically delivered entertainment such as Netflix.
While the ITFA (Internet Tax Freedom Act), the moratorium on sales tax on internet access services expires October 1, 2015, the push for a permanent ban on Internet Access taxes, has been joined by the momentum of The Remote Transaction Parity Act (“RTPA”). In contrast to the MFA (Market Place Fairness Act), RTPA will include:
- An initial larger inclusion of small business sellers that would be excluded from the collection requirement but phased back-in over time.
- More protections for use of certified software providers.
- Expanded audit protections.
Whether this new effort to “level-the-playing field” will pass this session remains to be seen. Notwithstanding the perpetual “internet sales tax” political dance on Capitol Hill, state and local tax administrators have been quite creative of late to plug shortfalls in budgets as the gap between online sales and brick-and-mortar sales continually increases.
Below are a few more examples of recent expansions, rulings and clarifications issued by state and local authorities related to the ever-changing internet economy:
Alabama – Alabama is offering an amnesty program specifically directed to online retailer’s to pay sales taxes for internet sales and keep 2% of the sales tax.
Connecticut – Effective October 1, 2015, sales of services to create, develop, host or maintain all or part of a website become taxable sales of computer and data processing services.
Nevada – Effective October 1, 2015, Nevada will expand the presumption of nexus for “click-through” (e.g. Amazon) out-of-state vendors with $10,000 or more of annual sales.
Tennessee – The Tennessee Department of Revenue has issued a notice that, effective July 1, 2015, sales of video game digital products and online use of computer software are subject to sales tax if they are accessed from Tennessee. In addition, nexus presumptions were also expanded to include “click-through” out-of-state sellers.
Texas – While researching an issue for a client recently, I came across Texas’ treatment of “cloud computing services”, such as infrastructure technology services which allow a customer to access server bandwidth and storage (“cloud storage”), as subject to sales tax under data processing classifications.
City of Denver – Recently the City of Denver updated and clarified its data processing statutes. Under its Tax Guide, licenses to use software for a fee on servers located outside of Denver but utilized by users in Denver are subject to sales taxes. On other hand, software development services where the buyer has title to the software during all phases of development and implementation is not taxable if software cannot be resold.
We should expect future expansions and re-interpretations as taxing authorities become more impatient with the impasse in Congress and the swift growth of internet based products and services continues. More to come…