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

or call 1-800-926-7926
Program Materials

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.

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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)?

Faculty

David W. Bertoni
David W. Bertoni

Partner
Brann & Isaacson

Mr. Bertoni is a partner at Brann & Isaacson who handles state and local tax cases across the United States...  |  Read More

Michael E. Carey, Esq.
Michael E. Carey, Esq.

Brann & Isaacson

Mr. Carey is a Brann & Isaacson attorney who focuses his practice on state and local taxation of information...  |  Read More

Eisenstein, Martin
Martin Eisenstein

Managing Partner
Brann & Isaacson

Mr. Eisenstein is one of the nation’s leading experts in state and local taxation of information...  |  Read More

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