Michigan sales tax digital downloads

One source of added confusion is that a vendor of a digital good does not typically maintain a brick and mortar store front, or even a dusty warehouse for that matter. Often, a seller of a digital good is utterly remote from the consumer, across the nation or across the world.

There are three additional layers involved in the taxability of digital goods. First, where do digital goods begin and other related technologies end? Third, how do states address digital goods-related sourcing issues?

On the first issue, for example, virtual items, virtual currency and virtual realities are not addressed by any state law or regulation yet.

Even in markets with more widespread use and consumption, such as data processing, software and cloud services, there are a lot of issues left open. Vendors need to get a handle on the rules that apply now, but with a keen eye on how new technologies will steer the market and eventually the sales tax collector too.

The second issue is as old as the first tax ever collected. Nexus is the legal connection a state has with a vendor that gives the state the right to compel the vendor to collect sales taxes on behalf of the state. These elements need to be explored in the digital goods context for vendors and providers supplying digital goods trying to comply with nexus rules. The third issue, sourcing, describes the location were a given transaction is taxed. Put another way, what rates and rules are applicable to the sale?

What state or locality gets the money? He likely could not have imagined how his creation could someday influence state revenue collection.

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