Digital Goods & Wayfair

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Presentation transcript:

Digital Goods & Wayfair Trending TPT Issues: Digital Goods & Wayfair

Trending TPT Issues Digital Goods South Dakota v Wayfair 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 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

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

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

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

What Did the Decision Say? 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

What Does This Mean in Arizona? 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

Questions? (Ask Lee) Tom Belshe Deputy Director tbelshe@azleague.org Lee Grafstrom Tax Policy Analyst lgrafstrom@azleague.org