State Sales Tax in the Digital Economy: Navigating Electronic Taxability and the Factor Presence Rule

Determining When and Where Your Services and Products Trigger Liability

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, January 26, 2017
Recorded event now available


This webinar will provide guidance to corporate tax professionals, counsel and advisers for navigating the various and evolving standards of state taxability of digital products and services to determine what component of a company’s offering is taxable, and in which jurisdiction(s).

Description

Sales tax advisers and IT companies providing software, bundled and cloud services face special challenges in determining how and where their products and services will be taxed. There are numerous approaches among the individual states regarding taxes on IT services and products. Some states have specific statutes and rules aimed at determining what products and services each state taxes, which may conflict with other states’ practices.

Among the challenges advisers face in assessing whether the software provider will be subject to transaction taxes in a particular state is defining the product or service in the transaction—particularly when the transaction has bundled elements.

If the “true object” of the item sold is included in a state’s definition of taxable products or services, then the sale is likely subject to transaction tax. In most jurisdictions, bundling an otherwise nontaxable service with a taxable product or service may render the entire transaction taxable.

Additionally, the rise of the factor presence rule adds another dimension to whether a transaction will be subject to taxation. States have been slow to adopt the Multi-State Tax Commission’s (MTC) model rule. However, nine states currently use it, including Ohio, Alabama, California, Colorado, Connecticut, Michigan, New York and Tennessee. This bright-line standard establishes nexus and tax liability whenever a statutory threshold is exceeded, including sales-only thresholds.

Listen as our experienced panel discusses the various challenges of determining the taxability of IT services and products; explains the pitfalls of the factor presence rule; and reviews best practices for structuring contracts and transactions to segregate taxable from nontaxable services and products.

Outline

  1. Categories of IT Products and Services
  2. Elements of determining taxability
    1. Character of service or product and “true nature” test
      1. Software;
      2. Installation;
      3. Maintenance
      4. Data Processing
      5. Information Services
      6. Cloud computing
    2. Sourcing
    3. Bundled services and products
    4. Nexus
  3. Factor presence rule
    1. MTC
    2. State implementations
  4. Special sourcing rules including addressing users in multiple jurisdictions

Benefits

The panel will review these and other key issues:

  • What approaches are states taking to define the nature of IT products or services for purposes of determining taxability for sales and use tax?
  • How do various states address the sourcing of IT products and services?
  • How do the various states treat pre-written software, which is accessed remotely, for purposes of sales and use tax?
  • What are states doing regarding the factor presence (economic nexus)?

Learning Objectives

After completing this course, you will be able to:

  • Identify various factors used in determining states’ approaches to taxing sales of IT services and products
  • Recognize contracts and transactions that properly exempt nontaxable services from state sales tax
  • Determine techniques for segregating nontaxable services and products

Faculty

David W. Bertoni, Partner
Brann & Isaacson, Lewiston, Maine

Mr. Bertoni is a partner at Brann & Isaacson who handles state and local tax cases across the United States involving questions of statutory and constitutional tax jurisdiction. He is currently representing a major Internet retailer in its Commerce Clause challenge to Ohio’s Commercial Activity Tax before the Supreme Court of Ohio, as well as constitutional challenges to sales and use tax and income tax assessments in states including Wisconsin, Georgia, Alabama, New York, and Maine. David is a graduate of the University of Rochester and the George Washington University Law School.

Michael E. Carey, Esq.
Brann & Isaacson, Lewiston, Maine

Mr. Carey is a Brann & Isaacson attorney who focuses his practice on state and local taxation of information technology and telecommunications services, regulatory and administrative proceedings (including state tax and other regulatory issues), and civil litigation. In addition to his work in the law, Michael has worked for a national information technology consulting company. Michael is a graduate of Dartmouth College and the University of Maine Law School.

Martin Eisenstein, Managing Partner
Brann & Isaacson, Lewiston, Maine

Mr. Eisenstein is one of the nation’s leading experts in state and local taxation of information technology. He has wide experience in state and local tax issues and has represented prominent providers in major litigations, including filing amicus briefs in the United States Supreme Court. He is a regular contributor to State Tax Notes, among other publications, writing on state tax developments. Mr. Eisenstein has been selected consistently by his peers as one of The Best Lawyers in America.


Recordings

Recorded Event

Includes full event recording plus handouts.

Note: Self-study CPE and EA credits are not offered on recorded events.

Recorded Webinar Download $247.00

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Program Materials

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Program Materials

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Sales and Use Tax Advisory Board

Silvia Aguirre

Chief Certificate Officer

Avalara

Rick Bregitzer

Manager of Domestic Taxes

Parker–Hannifin

Stephanie Anne Lipinski-Galland

Partner

Williams Mullen

Joseph Geiger, Esq., CPA

Tax Consultant

Vertex

Diane Matulich

Senior Manager, Local Taxes

Advanced Micro Devices

Rich Prem

VP of Indirect Taxes and Tax Reporting

Amazon.com

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