• Potential issues with respect to multiple points of use
• Other potential double taxation

• “Electronic commerce”
• “Similar property, goods, services, or information”
• “Internet access”

– New Jersey Digital Economy Study – 2023

– Report to the Mississippi Legislature on Taxation of Software Products and Services – 2022

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• Sales tax versus use tax and whether difference in the nature of the taxes might justify additional rules
  • Multiple points of use
    • Adoption and repeal of rule by Streamlined
• Possible limit on the period after first use during which a subsequent use in a state may give rise to tax

• Application of general B2B exemptions to digital products when the purchaser is a business
• Application of exemptions based on the nature of the item or use, e.g., fabrication, processing, etc.
• Application of typical exemptions related to services, e.g., educational services, entertainment, etc.

• Treatment of bundled or mixed transactions – where digital products that are or may be taxable are sold in combination with or integrated with other items, including services, which are not taxable
  • Consideration includes ITFA bundling rule
  • Possible solutions
    • SSUTA, Appendix C, Part I – Administrative Definitions provides a lengthy definition of a bundled transaction which also contain substantive rules. Some of these rules apply specifically to traditional services or tangible personal property. The portions of the definition most relevant is excerpted here:

A “bundled transaction” is the retail sale of two or more products, except real property and services to real property, where (1) the products are otherwise distinct and identifiable, and (2) the products are sold for one non-itemized price. A “bundled transaction” does not include the sale of any products in which the “sales price” varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction.

(A) “Distinct and identifiable products” does not include:

. . .

1. 1. 1. 1. 1. 2. A product provided free of charge with the required purchase of another product. A product is “provided free of charge” if the “sales price” of the product purchased does not vary depending on the inclusion of the product “provided free of charge.”
               3. Items included in the member state’s definition of “sales price,” pursuant to Appendix C of the Agreement. [See that definition discussed above.]

(B) The term “one non-itemized price” does not include a price that is separately identified by product on binding sales or other supporting sales-related documentation made available to the customer in paper or electronic form including, but not limited to an invoice, bill of sale, receipt, contract, service agreement, lease agreement, periodic notice of rates and services, rate card, or price list.

(C) A transaction that otherwise meets the definition of a “bundled transaction” as defined above, is not a “bundled transaction” if it is:

. . .

(3) A transaction that includes taxable products and nontaxable products and the “purchase price” or “sales price” of the taxable products is de minimis.

(a) De minimis means the seller’s “purchase price” or “sales price” of the taxable products is ten percent (10%) or less of the total “purchase price” or “sales price” of the bundled products.

(b) Sellers shall use either the “purchase price” or the “sales price” of the products to determine if the taxable products are de minimis. Sellers may not use a combination of the “purchase price” and “sales price” of the products to determine if the taxable products are de minimis.

(c) Sellers shall use the full term of a service contract to determine if the taxable products are de minimis; or

. . .

• Application of special tax treatment of communications, especially when bundled with other digital products – e.g., enterprise software.
• Application of tax to data and information and whether public information can be “sold” or whether the product is the mechanism for transmitting or using that data

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• Threat of qui tam and class action suits [see the MTC resolution on this subject]
• Expansion of the tax base through administrative interpretation
• Effect on existing marketplace facilitator laws
• Sufficient time for taxpayers to implement changes and for agency to issue necessary guidance

– 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.