As we welcome the New Year, I thought it would be fun to look at a few areas where state tax laws and technology are coming together. Keep reading for three different updates that share ways modern tech is affecting states’ revenue.
1. Ohio Accepts Cryptocurrency for State Tax Payments
Cryptocurrency like Bitcoin has been around for a while now, yet Ohio is setting an interesting state tax precedent by allowing businesses to pay their fees with the digital currency.
This is especially interesting as these types of currency are known for volatility. However, the state’s taken this into consideration. OhioCrypto explains:
Payments made on OhioCrypto.com, through our third party cryptocurrency payment processor partner BitPay, are immediately converted to USD before being deposited into a state account. BitPay sets the exchange rate for a 15 minute allotted time window for each transaction once a business taxpayer begins to make their payment at OhioCrypto.com. BitPay assumes the risk of any market fluctuations during the allotted time window.
While the taxpayer will need to pay transaction, network and mining fees, the cost to the business seems to be less than if they paid their state tax fees through Ohio’s credit card service provider.
It will be interesting to see if other states decide to begin accepting cryptocurrency for state tax payments in the future.
2. Chicago’s Netflix Tax
In the past we’ve discussed how confusing state tax legislation is regarding technology, such as software as a service (SaaS) and other digital goods, because definitions vary from state to state. Some Departments of Revenue claim software isn’t taxable because it’s not tangible, while others say a downloaded file is a physical item that can be taxed. But what about streaming services like Netflix?
According to Chicago’s Department of Finance, streaming services like Netflix fall under the city’s amusement tax. As Tax Foundation explains, “There is a right way and a wrong way to tax digital goods.” While states like Washington and Pennsylvania enacted legislation that explains how digital goods (including streaming services) will be taxed, Chicago simply decided to apply an older law to newer technology.
Using outdated legal language to assert taxing authority over different transactions creates confusion and uncertainty for taxpayers. The rationale of Chicago’s interpretation is further called into question when considering that actual downloads of movies and music are exempt; the amusement tax only applies to streaming entertainment.
Although the interpretation was challenged, so far it’s held up in court. It will be interesting to see if Chicago decides to update its code as technology continues to change, or if a state tax law ends up instigating a change.
3. California Considered State Tax on Text Messages
Last year California enacted state tax legislation on gas, water and cannabis. What will it start taxing in 2019? For a while it considered text messages. USA Today reported public law filings from the state’s Public Utilities Commission, “That would charge mobile phone users a fee for sending text messages.”
Why a tax like this? California’s Public Purpose Programs uses state tax funds to provide low-income residents with telecommunications services. As technology and the culture shifted consumer behavior towards texting rather than talking on their phones, these programs’ revenue have decreased by about a third. This new state tax is aimed at replenishing the fund.
In the end, state regulators abandoned the idea. CNN reported, “A new FCC ruling prevented the state from levying a tax on text plans…it issued a new rule on December 12 determining text messages constitute an ‘information service’ — not a ‘telecommunications service.’” Still, it’s another interesting example of the way various technologies’ definitions affect state tax code!
State tax laws, like technology, are always changing; it’s interesting to see how legislatures continue to update and apply various statutes in an attempt to keep up. Still, it can get confusing for businesses! Contact us today if you need help making sense of multi-state tax issues and how they may affect your company.
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects. To learn more, contact us today at www.MilesConsultingGroup.com.
