Digital Economy

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Businesses that sell video games and related content online and by remote access have been pondering an essential sales and use taxability question: What is the proper characterization of the goods and services being sold? Although downloaded video games have long been thought to be a form of prewritten computer software, businesses that sell related subscription services, virtual goods, and virtual currencies have enjoyed much less tax certainty.

Two states have weighed in on this issue in recent months. Kansas and Missouri issued letter rulings addressing the tax issues that arise in the gaming environment. Although the states’ guidance is not entirely consistent, gaming companies may welcome any move toward improved tax clarity in the virtual gaming business.Continue Reading Virtual Chaos: Two States Log In to the Online Gaming Arena

The Virginia Supreme Court recently issued an interesting decision related to the minimum tax on telecommunications companies. The court held that the State Corporation Commission (“SCC”) did not have authority to exclude the taxpayer’s Internet-related revenues from the gross receipts it certifies to the Department of Taxation (“Department”). Level 3 Comm’ns, LLC v. State Corp. Comm’n, 710 S.E.2d 474 (Va. June 9, 2011).

Level 3, a telecommunications company, provides wholesale Internet services to Internet service providers. It maintains an extensive network in Virginia and is thus subject to Virginia’s minimum tax on telecommunications companies (telecommunications companies are subject to either a corporate income tax or a minimum tax on gross receipts). The minimum tax computation is a two-step process:

  1. The Virginia SCC is required to certify telecommunications companies’ gross receipts to the Department, 
  2. The Department calculates the minimum tax.

Continue Reading Virginia Supreme Court Includes Internet-Related Revenue in Tax Base (Sort of)

In what is surely a sign of more good things to come, Colorado repealed its short-lived sales tax on “standardized” (canned) software other than canned software delivered by tangible storage medium. The legislation, House Bill 1293, statutorily reinstates Special Regulation 7 by exempting software delivered or accessed by application service providers (ASP), electronic delivery…

With all the drama and suspense of a Hollywood movie, California Governor Jerry Brown signed AB X1 28 on June 29—more than two weeks after the bill originally passed the California legislature. AB X1 28 has been controversial because it significantly expands California’s sales and use tax collection requirements by substantially incorporating all of the provisions of former AB 153 (click-through nexus), AB 155 (affiliate nexus), and SB 234 (constitutional nexus). Together, these changes combine California’s recent efforts to force remote sellers to collect California sales tax. To further complicate matters, AB X1 28 provides that these changes become effective immediately.

AB X1 28 amends California’s definition of “retailer engaged in business” for sales and use tax collection purposes, as set forth in Cal. Rev. & Tax Code § 6203, to include three new groups of “retailers” as follows.Continue Reading Nexus Explosion: California Governor Signs Bill Expanding California Sales Tax Collection Requirements

The Washington Supreme Court recently adopted the “primary purpose of the purchaser” test to determine whether a transaction should be broken down into its component parts or considered as a whole. In Qualcomm, Inc. v. Department of Revenue, the court overturned the state court of appeals and held that a taxpayer’s vehicle tracking service was subject to buiness and occupation (B&O) tax as an information service, and not as a network telephone service. The court reasoned that the purchaser was buying an integrated management tool that happened to include data transmission, not a telephone service coupled with tracking hardware and software.Continue Reading Keep on Truckin’: Washington Supreme Court Analyzes the Primary Purpose of Vehicle Tracking Service