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Companies that sell digital products in the U.S. should know about a relatively new kind of tax – and tax obligation. 

leadership-working-with-his-employee-VCGNBG2Maryland has a new tax on digital advertising and has extended the states existing sales and use tax to the sale of such digital goods as digital code, streaming, music, ring tones, e-books and audio books, movies, online newspapers and cable, satellite and pay-per-view television programming. 

The state will impose a gross receipts tax ranging from 2.5% to 10% on advertising businesses with global revenues exceeding $100 million, so long as they have at least $1 million in advertising revenue within Maryland.  

The advertising portion of the law continues to be controversialOpponents have promised legal challenges, and the Tax Foundation calls the new Maryland law incredibly vague on vital definitions, creating uncertainty about where revenue is sourced and when it is subject to the tax. 

The ambiguity could lead to double taxation, with multiple entities paying taxes on gross receipts from the same ad being served to a viewer, and lawmakers have failed to take the complexity of digital advertising into account in structuring the proposed tax,” the Foundation added. 

Full of legal holes or not, will laws similar to Maryland’s mushroom in other states? Montana and West Virginia are considering oneNebraska lawmakers shelved such a proposal last year. 

Generally, digital products are “intangible” and sent to your customers electronically. These products can include digital books, music, internet TV and streaming media, webinars, subscriptions, software and apps, among many other products. 

States tackle the taxation of digital goods and services in a dizzying number of ways. (Among new developments in this areaGeorgia is considering expanding its sales tax to include digital productsSlightly more than half the states tax sales of digital products, and the idea is gaining serious momentum internationally. 

Given that tax jurisdictions are generally hungry for more revenue in the wake of the pandemic, it’s common sense to look for such groundbreaking tax laws spreading.  

We can help you stay on top of this ever-changing environment. TaxConnex is an outsourced sales department that can take the burden of sales tax off your plate. Contact us to learn what it means when sales tax is all on us.   

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2011 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.