Taxing streaming services is one of the latest in a string of sales tax on digital products in the United States.
By Judy Vorndran and Stacey Roberts
The Colorado Department of Revenue adopted amendments to its tangible personal property rule (Rule 39-26-102(15) imposing sales tax on sales of streaming digital goods, putting services like Netflix and Disney+ on the hook for collecting sales tax from subscribers who reside in Colorado. The Department amended the regulation to say, “[t]he method of delivery does not impact the taxability of a sale of tangible personal property.” The rule will include tangible personal property delivered by compact disc, electronic download, or internet streaming. Services where a purchaser pays a monthly subscription fee “to select and stream movies and television shows from a library of available titles[,]” will pay tax on the monthly subscription cost. Non-taxable computer software will remain exempt. Purchases that include both tangible personal property and services will be subject to sales tax based on the “true object” of the purchase.
The final rule will take effect on January 30, 2021.
Sales tax laws are unfolding to capture a broader base of digital goods and services state-by-state. As of this writing, 24 states were taxing digital products, while 21 did not. Only five states do not impose a statewide sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon). For the rest, the tax rate on digital products varies from 1% to 7%, depending on location and character of the digital good.
Get in Touch with Judy Vorndran or your Tax Advisor to discuss how digital service taxation impacts your business.
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