State Taxation of Digital Goods and Services: Cloud Computing, Cryptocurrency, Gaming, Virtual Transactions

Many states have enacted guidelines concerning sales tax and digital goods; however, state income tax regulations are either evolving or non-existent. Squeezing digital goods into existing state nexus rules is a growing challenge for SALT practitioners. With the ever-increasing number of digital products and services, state tax advisers must grasp reporting, remittance, and taxation rules in various states.

The breadth of items in this category continues to grow. Music and book downloads, cryptocurrency, cloud software, gaming, and even health services offered digitally can and do create economic nexus in various states. Whether a state has adopted a market based or factor-based nexus standard impacts the application of existing regulations to digital sales. Sales of digital assets into a state, relationships with individuals in a state (miners or agents, for example), as well as the location of a server, can each create nexus with a state.

Most states have established rules for classifying computer software as tangible or intangible property for sales tax purposes. However, these determinations can and do differ for sales tax and income tax determinations.

Listen as our panel of SALT experts explains income tax nexus for digital goods in states throughout the U.S., including the common methods utilized to determine nexus, nexus traps for the unwary, and best practices for companies receiving digital revenue from multiple states.

1. Digital goods
   1. An overview
   2. Categories
2. State methods for determining nexus for digital products and services
3. PL 86-272 and its application to digital revenue
4. Sales tax
5. Specific examples
6. Best practices for compliance

The panel will review these and other critical considerations:

• The application of state nexus determinations to specific categories of digital goods
• How P.L. 86-272 applies to digital products and services
• Which states are attempting to tax digital products in unexpected ways?
• What are the standard methods for determining income tax reporting and remittance obligations in most states?
• What steps can professionals take to ensure businesses are not subject to unnecessary taxation in specific states?

Learning Objectives

After completing this course, you will be able to:

• Identify many types of digital revenue
• Determine how classification as intangible or tangible property impacts the taxation of digital sales
• Ascertain which states have specific rules for classifying digital revenue
• Decide how to apply P.L. 86-272 to digital sales

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.