Appendix

This is a list of the stakeholders that MTC staff talked to, the questions we asked, and a summary of the responses we received.

Digital Products Stakeholder Discussions as of July 1, 2022

• Departments of Revenue (11)
  • Arizona
  • Hawaii
  • Colorado
  • Maryland
  • New Jersey
  • New Mexico
  • Texas
  • South Dakota
  • California Department of Tax and Fee Administration
  • Utah
  • Iowa

• Taxpayers (7)
  • Amazon
  • AT&T
  • Meta
  • Verizon
  • Microsoft
  • Charter Communications
  • Apple

• Practitioners (8)
  • Kranz & Associates
  • Eversheds Sutherland
  • BakerHostetler
  • EY
  • KPMG
  • Deloitte
  • McDermott Will & Emery
  • MultiState Associates

• Industry (2)
  • Avalara
  • Tax Cloud

• Organizations (10)
  • Council On State Taxation
  • Electronic Transactions Association
  • Center on Budget Policy and Priorities
  • American Bar Association – written comments submitted
  • Tax Foundation
  • Motion Picture Association
  • Streamlined Sales Tax Governing Board (staff)
  • AICPA – State & Local Tax TRP
  • National Taxpayers Union Foundation
  • National Conference of State Legislatures (informal)

• Academics (4)
  • Bill Fox, Univ. of Tennessee
  • Orly Mazur, Southern Methodist University Dedman School of Law
  • Adam Thimmesch, Nebraska College of Law
  • Hayes Holderness, University of Richmond School of Law

Stakeholder Questions

These are the basic questions we asked all stakeholders, with some modifications for states and the “Big Four” accounting firms that agreed to talk with MTC staff.

1. 1. Which states have the best / worst approach to taxation of digital items and why?
   2. Which states have the best guidance for taxpayers/CSPs?
   3. Which states have the best systems for taxation of digital products?
   4. How much of a problem is the fear of qui tam or other suits for sourcing/charging the wrong rate?
   5. Would it make things simpler if states would allow taxpayers to “build in” the cost of the tax, rather than charging it on the bill or invoice, so that the tax would work more like a gross receipts tax?
   6. In addition to the concerns that states’ taxation of digital products lacks uniformity (definitions, sourcing, etc.) and likely may be over-reliant on “B to B” transactions, please identify any other major concerns states’ taxation of digital products and be as specific as possible.
   7. How would you approach the taxation of digital products irrespective of what states are currently doing? What are your specific suggestions on how such taxes should be structured, imposed, and administered?
   8. What issues relating to the taxation of digital products should the MTC be focusing on and in what priority?
   9. How should the MTC approach this uniformity project in order to get maximum positive input from interested parties (in particular private sector/industry participants) to produce the best possible end result that states can use for sound policy guidance?
   10. What would you like to see as the end result for this project?
   11. Any other thoughts for us / the Uniformity Committee?
   12. Who else should we be talking to?

Summary of Stakeholder Responses

As reported at the April 20, 2022 Uniformity Committee meeting, here are some general takeaways from the interviews in no particular order.

1. 1. There is general support for the project: The majority of people are supportive of this project and can see value from the MTC proceeding to help provide information and guidance to policymakers, taxpayers, and tax administrators. In only one interview were we told not to move forward.
   2. Be mindful of the Streamlined states: We are mindful of what the Streamlined states are doing with respect to taxation of digital products, particularly their current project on sourcing. Richard Cram is monitoring their activities.
   3. B to B transactions: Attention is needed to bundling, multiple points of use, and related issues; eliminating “B to B” transactions could simplify taxation issues. Iowa has statutory language.
   4. Definitions needed: Some are concerned that clear definitions will lead to more taxation of digital goods and services, but many people said clear definitions were important.
   5. Broad versus piecemeal approach: Washington state is a good model among the states as to how to tax digital items given the broad definitions and clear guidance. In contrast, and for example, trying to navigate how to tax software depending on how it is sold (TPP vs. SaaS vs. downloaded) is a burden and leads to greater risk of getting it wrong.
   6. Sales and use versus other tax type: Taxing digital goods and services through a sales and use tax is the best way to proceed; creating a new or separate tax, such as a gross receipts tax, adds complexity to the overall tax system and has its own problems / doesn’t solve other problems, such as not allowing for exemptions based on purchaser status and requiring sellers to still determine proper tax rates.
   7. Legislation versus administrative guidance: There is a preference for state legislatures to address taxation of digital items rather than through administrative guidance.
   8. Whitepaper versus model statute: Most people liked the idea of developing a whitepaper / best practices for policymakers to use as guidance. Fewer people asked for model statutory language.
   9. Focus on today versus the future: Stakeholders recommended focusing on the digital goods that exist now (instead of trying to look ahead) and making rules that are broad enough to cover future innovation.

– Comments of the ABA – Issues to Address Regarding the Taxation of Digital Products – Nov. 2, 2021

– Letter from Eversheds Sutherland – Sept. 21, 2022 to the Work Group at its initial meeting.

– Letter from Eversheds Sutherland – Jan. 3, 2023

– Multistate Tax Group Needs Expertise to Form Digital Definitions, by Kelvin M. Lawrence, published by Bloomberg Tax June 13, 2023, and posted with permission

– Comments from Jeff Friedman and Charlie Kearns, Eversheds Sutherland, “The MTC’s Digital Products Work Group Should Adopt Our Three Guiding Principles” Aug. 9, 2023.

Note: Links are to external websites.

Arizona – PLR 21-003 – Data on an Electronic Spreadsheet is Tangible Personal Property  and H. 2204 on Virtual Currency and NFTs

Arkansas – Candy, Soft Drinks, and Digital Products

California – Graphic Design, Printing, and Publishing (with info on when digital items are taxed)

Colorado – Definition of “tangible personal property” inclusive of digital goods

Connecticut – Sales and Use Taxes on Digital Goods and Canned or Prewritten Software

District of Columbia – Digital Goods Sales Taxability Chart

Florida – Communications Services Tax

Idaho – Idaho Sales & Use Tax Administrative Rules

Illinois – ST-23-0011-GIL – Taxability of Computer Software

Indiana – Application of Sales Tax to the Sale, Lease, or Use of Computer Hardware, Computer Software, and Digital Goods, Advertising Agency Digital Sales Tax Rules

Iowa – Taxation of Specified Digital Products, Software, and Related Services, Notice of Intended Action, Updated Sourcing Rules

Kentucky – Imposition of Sales Tax

Louisiana – Definition of Tangible Personal Property

Maine – Instructional Bulletin No. 56 – Telecommunications

Maryland – Business Tax Tip #29 Sales of Digital Products and Digital Codes

Michigan – Guidance for when sales and use tax applies to sales of software and digital goods, Sales Taxability of Transactions Involving Sale of Computer Software as Service

Minnesota – Computer Software and Digital Products

Mississippi – Notice to purchasers of computer software and/or computer software services

Missouri – Letter Ruling – Digital Copies of Medical Records Sent Electronically are not subject to Sales Tax

Nebraska – Revenue Ruling – Retail Sales of Digital Media

New Jersey – Specified Digital Products & New Jersey Sales Tax and TAM on Convertible Virtual Currency

New Mexico – Digital Advertising Gross Receipts Tax Rule

North Carolina – Certain Digital Property

Ohio – Sales and Use Tax – Digital Products, Data Processing Rules

Pennsylvania – Tax on Digital Products

Tennessee – SUT-65 – Specified Digital Products, Letter Ruling on Bundling; Destination-based sourcing for interstate sales of digital services

Texas – Guidance on the taxability of electronic games and associated content

Vermont – Guidance on Tax on Pre-Written Software

Washington – taxation of digital entertainment subscription fees and Interim Statement on NFTs

Wisconsin – General Information on Digital Goods

– FTA Resolution 2023-1: Supporting State Efforts to Promote Transparency, Certainty, and Clarity of State Tax Policies (links to FTA website)

– Signed Joint Resolution Supporting Uniformity Efforts regarding Digital Products – MTC and SST – July 2023

Draft of Detailed Outline of White Paper – August 2, 2022

Draft Detailed Outline of White Paper – September 1, 2022 (Word Version)

White Paper Outline as of October 17, 2022 (Word Version)

White Paper Outline for the December 8, 2022 Meeting

White Paper Outline for the January 5, 2023 Meeting (Word Version)

White Paper Outline as of February 2, 2023 (Word Version)

– Taxing Digital Is Hard, Former State Tax Chief Says (Podcast) Source – BLW (Bloomberg Law) Time – 2024-02-21 16:35:58 (links to external website)

– Jennifer Carr, “Gil Brewer: Consensus Builder,” Tax Notes State, December 18, 2023

– Audio from November 14, 2023 Uniformity Committee ITFA Panel and Discussion and Status Report (links to MP3)

– Powerpoint from ITFA Panel and Discussion

– External links to articles referenced in Ray Langenberg’s “Determining the Tax Base”

– Young Ran (Christine) Kim & Darien Shanske, State Digital Services Taxes: A Good and Permissible Idea
(Despite What You Might Have Heard), 98 Notre Dame Law Review 741 (2022).

– Tax Foundation Fiscal Fact No. 563, Oct. 2017, “Sales Tax Base Broadening: Right-Sizing a State Sales Tax”

– Agrawal, David R.; Fox, William F. (2020): Taxing Goods and Services in a Digital Era, CESifo Working Paper, No. 8708, Center for Economic Studies and Ifo Institute (CESifo), Munich

– Annette Nellen, “Now Is a Good Time to Start Fixing the Sales Tax Base,” Tax Notes State, September 7, 2020 (posted here with permission from State Tax Notes and Prof. Nellen).

– Video from July 25, 2023 Uniformity Committee Panel and Discussion of Tax on Business Inputs (links to Vimeo)

– State Digital Services Taxes (Frieden and Lindholm)

– Down the Rabbit Hole (Frieden, Nicely, and Nair)

– Effect on State Revenue (Texas) (PDF)

– ITEP Slides (Ettlinger) (PDF)

– Video from June 1 meeting of Project Workgroup – Research update from MTC Counsel Jonathan White on state treatment of digital products (links to Vimeo)

– Digital products state research (Excel)

– Digital products state research (PowerPoint slides)

– Written summary of research update on state treatment of digital products

– Video – Streamlined Sales Tax on Digital Products – Craig Johnson (Streamlined), Tim Jennrich (Washington), and Deborah Bierbaum (Multistate Associates), presenting at MTC’s Uniformity Committee meeting, April 25, 2023. (links to Vimeo)

– Article by Adam Thimmesch, “The Scope of Digital Sales Tax Reform,” Tax Analysts, Tax Notes State, March 27, 2023.

– Article by Natalia Garrett and Grant Nülle, “Digital Goods and Services: How States Define, Tax, and Exempt These Items,”  Tax Analysts, Tax Notes State, May 18, 2020.

– Slides of Natalia Garrett – Digital Goods: How States Define, Tax and/or Exempt

– Louisiana Research – Digital Products (2021) – State Chart and State Breakdown

– National Tax Association Paper (Hecht – 2014) – Sourcing of Digital Goods and Services for Sales Tax – The Evolution of a Federal Legislative Proposal

– Report to the MTC Uniformity Committee (Hamer – 2019) – Sourcing Digital Goods and Services

– Avalara – State-by-state guide to the taxability of digital products – Gail Cole, Dec. 4, 2020

– Presentation to the Arizona State Legislature – Ad Hoc Joint Committee on the Tax Treatment of Digital Goods and Services – Tax Treatment of Digital Goods and Services: Overview and Cross-State Comparison – 2017

– Center on Budget Policy and Priorities (Mazerov – 2012) – States Should Embrace 21st Century Economy by Extending Sales Taxes to Digital Goods and Services

– New York City Independent Budget Office – Fiscal Brief (2015) – To Tax or Not To Tax the New Economy: Digital Goods and Sales Tax in New York

– SSTP: Out of the Great Swamp, But Whither? A Plea to Rationalize the State Sales Tax – Charles E. McLure (2002)

– “Sales Taxation of Electronic Commerce: What John Due Knew All Along,” Charles E. McLure and Walter A. Hellerstein, Proceedings Annual Conf. on Taxation of the Nat’l Tax Assoc., Vol 93 (2000), pp 216-222.

– “Digital Taxation Around the World,” Daniel Bunn, Elke Asen, Cristina and Enache, Tax Foundation (2020)

– “The Current State of Sales Tax on Digital Products,” Joyce Beebe, Ph.D., Rice University’s Baker Institute for Public Policy, Aug. 7, 2019.

– Presentation on the Taxation of Digital Products – SEATA – 2020 – Steven Kranz, Douglas, Lindholm, Nancy Prosser

– “A Global Perspective on U.S. State Sales Tax Systems as a Revenue Source: Inefficient, Ineffective, and Obsolete.” by Karl Frieden and Douglas Lindholm, Council On State Taxation, November, 2021