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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

In what is surely a sign of more good things to come, Colorado repealed its short-lived sales tax on “standardized” (canned) software other than canned software delivered by tangible storage medium.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…

The California Court of Appeal held that receipts from Nortel’s license of computer programs used to operate a telephone company’s switch hardware were not subject to sales tax. Nortel Networks, Inc. v. State Board of Equalization, Case No. B213415 (2d App. Dist. Jan. 18, 2011). The court also partially invalidated Regulation 1507 on the grounds that the State Board of Equalization (SBE) had exceeded its authority when it enacted the regulation.

The Court of Appeal’s decision provides guidance regarding the scope of exempt Technology Transfer Agreements (TTA), which are defined as “any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright.” Cal. Rev. & Tax. Code § 6011(c)(10)(D); 6012(c)(10)(D).Continue Reading California Court of Appeal Switcheroo: Software Constitutes Technology Transfer Agreement

The New Jersey Division of Taxation is revisiting a proposed regulation that would provide new rules governing the sale of software and related services. While the draft regulation has not been formally published for public comment, the Division is working with interested parties to accept comments prior to the draft’s publication.

The draft would…