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Trending TPT Issues: Digital Goods & Wayfair

Dive into the legislative history, implications of the South Dakota v. Wayfair case, and what's next for digital goods taxation in Arizona. Learn about nexus, exemptions, and the impact on state and local revenues. Stay informed!

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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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