Today I am going to talk to you about a common problem for remote sellers of digital products. Let’s say that you are a Montana based company that sells online digital products throughout the United States. You know that Texas wants to impose a sales tax on the company’s revenue from sales to Texas residents.
However, which of your customers are Texas residents? Your company doesn’t ship any packages to is customers and so it doesn’t collect shipping addresses. But your company can identify Texas customers through the customer’s Internet protocol identification, which the company collected when the customer’s user account was created. Will this work?
Well, an out of state company providing VoIP calling, WiFi, and text/video/instant messaging asked the state of Texas if it could source its Texas sales for sales tax purposes based upon customer Internet protocol addresses and Texas said ok. Texas Private Letter Ruling No. 201711002L, Nov. 9, 2017; https://star.cpa.texas.gov/view/201711002l?terms=201711002L
Comment. Small companies providing online digital products to customers in other states should expect increasing sales and income tax demands for sourcing and apportioning its multistate revenue. An approach using Internet protocol identification may be a tool that could lessen the compliance burden. However, check with the taxing jurisdiction to see if this approach is permissible.
By John McCauley: I help people buy and sell businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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