United States

Sales tax on digital equivalents

Look through to the true object

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There is no functional difference between goods and services delivered via tangible property and equivalent goods and services delivered electronically.

This is the central argument made by Brian Kirkell and Brad Hershberger in this thought-provoking article, first published in Tax Analyst's State Tax Notes. In it, the authors discuss how adoption of the Streamlined Sales and Use Tax Agreement (SSUTA) may not be the best approach to managing sales tax on digital goods and services. They propose that states instead consider the true object of the transaction and harmonize the sales and use tax treatment of goods and services delivered via tangible property and equivalent goods and services delivered electronically.

Businesses should understand how the SSUTA does, or does not, provide uniformity and fairness regarding the taxation of digital goods and services. Kirkell and Hershberger provide examples of this in their argument for an alternate approach. If the goal is to make the taxation of digital goods and services uniform, fair and simple–thereby improving overall compliance–considering the consumer's true object in the purchase is the first step. Harmonizing the sales and use tax treatment of goods and services delivered via tangible property and the sales and use tax treatment of equivalent goods and services delivered electronically may just provide the true uniformity that states and taxpayers are seeking.

Read Sales tax on digital equivalents: Look through to the true object

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