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Trending TPT Issues: Digital Goods & Wayfair

Trending TPT Issues: Digital Goods & Wayfair. Trending TPT Issues. Digital Goods What Is It? Legislative History What’s Next? South Dakota v Wayfair What is Nexus? What Did the Decision Say? What Does This Mean in Arizona? Please hold questions until the end. Digital Goods

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Trending TPT Issues: Digital Goods & Wayfair

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  1. Trending TPT Issues: Digital Goods & Wayfair

  2. Trending TPT Issues • Digital Goods • What Is It? • Legislative History • What’s Next? • South Dakota v Wayfair • What is Nexus? • What Did the Decision Say? • What Does This Mean in Arizona? • Please hold questions until the end

  3. Digital Goods What is it? • Delivery of products over the Internet • Movies, music, books, software, etc. • Anything delivered in a file or as a stream of data to the user’s device • Tangible Personal Property (TPP) “…seen, weighed, measured, felt or touched or is in any other manner perceptible to the senses.” • AZ v. Jones (1943) – A song played on a jukebox is TPP and subject to the tax

  4. Digital Goods Legislative History • Ad Hoc Joint Committee on the Tax Treatment of Digital Goods and Services • Update statutory definitions • Determine exempt digital goods and services • Determine taxable digital goods and services • Provide uniform state and local tax treatment • Clarify sourcing and nexus • HB 2479/SB 1392, Digital goods & services • At least 8 new exemptions vs. current treatment • League estimated $121M State, $45M Local and $14.5 Prop 301 losses

  5. Digital Goods What’s Next? • Expect the Digital Goods bill to return • League will continue to oppose any: • Changes that go beyond clarification of current tax treatment, sourcing and nexus • Fair and equal treatment in taxation of all products, regardless of delivery method • The other wrinkle: South Dakota v Wayfair • Eliminating the physical presence requirement makes remote sellers subject to TPT

  6. South Dakota v Wayfair What is Nexus? • IL v National Bellas Hess (1967) • Quill v ND (1992) • Physical presence in a state is required for the state to impose its sales (TPT) tax • Includes stores, inventory, visiting salesmen, delivery by your truck, agents, etc. • South Dakota v Wayfair • SD passed “economic presence” • Minimum of $100,000 in sales, or 200 total transactions

  7. South Dakota v Wayfair What Did the Decision Say? • Physical presence rule of Quill was unsound and incorrect - overturned • Commerce Clause issues should be based on test in Complete Auto Transit v Brady • “Substantial” nexus with the state • Fairly apportioned • Doesn’t discriminate against interstate commerce • Fairly related to services the state provides

  8. South Dakota v Wayfair What Does This Mean in Arizona? • Many states have announced application of Complete Auto standard as of Oct. 1 • Amazon is forcing all 3rd party sellers to license and begin collecting taxes • ADOR is gathering information: other state treatments, laws, effective dates, etc. • No enforcement activity being taken currently • Waiting for expected legislative action • Beware the “windfall” myth

  9. Questions? (Ask Lee) Tom BelsheDeputy Directortbelshe@azleague.orgLee GrafstromTax Policy Analystlgrafstrom@azleague.org

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