digital tax update · maryland –digital ad tax (cont.) such services are provided within maryland...
TRANSCRIPT
Baker McKenzie SALT Team | April 1, 2020
Digital Tax Update
Presenters
Lindsay LaCavaPartner
New York
+ 1 212 626 4416lindsay.lacava
@bakermckenzie.com
Mark YoppPartner
New York
+1 212 626 4552mark.yopp
@bakermckenzie.com
Trevor MauckAssociateNew York
+1 212 626 4247trevor.mauck
@bakermckenzie.com
www.saltsavvy.com 2
Agenda
1 Introduction
2 New Digital Taxes
3 Expansion of Old Taxes to Digital Items
4 COVID’s Potential Impact on Digital Taxes
1
Introduction
Introduction
Objectives
Understanding of the current landscape of state digital taxes
Insight into future projections for state digital taxes
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2
New Digital Taxes
Maryland – Digital Ad Tax
H.B. 732 passed the legislature March 18th, but the governor is expected to veto it.
New gross receipts tax (separate from its current business taxes) on “digital advertising services.”
“Digital advertising services” are defined to include “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising and other comparable advertising services.”
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Maryland – Digital Ad Tax (cont.)
Such services are provided within Maryland when the digital advertising services appear on the device of a user:
(1) with an internet protocol address that indicates that the user’s device is located in the state, or
(2) who is known or reasonably suspected to be using the device in the state.
The tax rate ranges from 2.5% (for companies with 100 million or more in annual gross revenue) to 10% (for companies with 15 billion or more in annual gross revenue).
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Maryland – Digital Ad Tax (cont.)
Apportionment: numerator is the annual gross revenue derived from digital advertising services in the state and the denominator is the annual gross revenue derived from digital advertising services in the US
Sourcing issues
Nexus issues
Internet Tax Freedom Act issues
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New York – Data Tax
Assembly Bill 9112 seeks to impose a 5% tax on the “gross income . . . [from] every corporation that derives income from the data individuals of this state share with such corporations.”
Proposed inclusion in Section 209 of the New York Tax Law
Not limited to digital activities, but no real guidance on parameters
Funds directed to a new “data fund” for eventual distribution back to New York taxpayers
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New York – Data Tax (cont.)
Tax base not clear: worldwide or US?
Does not include apportionment measures
Sourcing and nexus issues
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New York – Digital Advertising Tax
Senate Bill 8056 creates a new tax imposed on annual gross revenues from digital advertising
Similar to the Maryland bill
Escalating rates based on the amount of global advertising revenue: 2.5% for $100 million through $1 billion, 5% for more than $1 billion through $15 billion, and 10% for more than $15 billion
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New York – Digital Advertising Tax (cont.)
Similar to the Maryland bill, the tax is apportioned based on revenues from the state
Limits the definition of “digital advertising” to advertising services that use personal information about the recipients of the ads
“Personal information” is not defined in the bill
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West Virginia – Data Mining Tax
House Bill 4898 imposes “a general data mining service tax.”
The bill requires “commercial data operators” generating revenue from the use, collection, processing, sale, or sharing of West Virginian citizens’ user data to pay the tax at the rate of one cent per dollar of value of user data.
The Commissioner would have the authority to develop the method to calculate the value of user data in consultation with “appropriate standards setting organizations.”
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West Virginia – Data Mining Tax (cont.)
A commercial data operator is “an entity acting in its capacity as a consumer online services provider or data broker that:
(A) generates a material amount of revenue from the use, collection, processing, sale, or sharing of the user data; and
(B) Has more than 10,000 unique monthly visitors or users in West Virginia for a majority of months during the previous one-year period.”
“User data” is defined as “any information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked with an individual user, whether directly submitted to the commercial data operator by the user or derived from the observed activity of the user by the commercial data operator.”
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3
Expansion of Old Taxes to Digital Items
Nebraska – Proposal to Expand Sales Tax
Nebraska lawmakers have proposed to expand the sales tax to apply to digital advertisements
L.B. 989 defines “digital advertisements” as “an advertising message delivered over the Internet that markets or promotes a particular good, service, or political candidate or message”
No guidance on sourcing
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Maryland – Proposal to Expand Sales Tax
Maryland lawmakers have passed a bill to expand the sales tax to apply to downloads of digital products
H.B. 932 defines “digital products” as “a product that is obtained electronically by the buyer or delivered by means other than tangible storage media through the use of technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities”
The governor is expected to veto the bill
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Chicago Amusement Tax
The Illinois Supreme Court recently decided to not review the constitutionality of the Chicago amusement tax as applied to online streaming services
The appellate court had found that the city’s application of the amusement tax did not violate the constitution or the Internet Tax Freedom Act because, according to the court, there is a difference between streaming services and other in-person amusements that are not taxable
Plaintiffs were residents of Chicago and subscribers to various services that provide media delivered electronically, including Netflix, Hulu, Spotify, and Amazon Prime
Labell v. City of Chicago
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Massachusetts Sales Tax
The Massachusetts Supreme Judicial Court recently decided that online screen-sharing software was “standardized software” subject to the Massachusetts sales tax
Found that the true object of the transaction was the use of the standardized software, and not a nontaxable service
Will likely have a far-ranging impact on how the MA DOR treats SaaS and cloud computing models going forward
Citrix Systems Inc. v. Commissioner of Revenue
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4
COVID’s Potential Impact on Digital Taxes
Where Do We Go From Here?
Will the current pandemic stall the development of digital taxes or will it result in rushed bills that are ill considered?
Will we see a major uptick in digital taxes as the pandemic wanes and states are short on cash?
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