US Colorado joins digital services sales tax rush

Colorado is scheduled to introduce its 2.9% sales tax on provisions of downloads and streaming video, TV, music, gaming, app’s and similar media from 30 January 2021. This would require international providers to register and charge sales tax on subscription or one-off charges.

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The rules on US sales tax on electronic services are complex as there is no federal tax – instead, it is left to over 12,000 taxing jurisdictions – states, cities, municipalise and counties. Approximately 30 states have levied tax on digital services, most of them have extended this to foreign or ‘remote’ sellers, following the 2018 South Dakota vs Wayfair Supreme Court ruling.

Since every state develops its own sales tax laws (minding certain constitutional constraints), there are no nationwide definitions for digital goods and services in the United States. Some states adhere to the definitions developed by the Streamlined Sales and Use Tax Agreement, or SST, which was created to simplify and modernize sales and use tax administration and reduce the burden of compliance. Unfortunately, the 24 member states aren’t required to adopt those definitions, and not all do.

Some states have created their own laws to address the taxability of various digital products and services. Some treat e-services as telecommunications rather than tangible goods.

Finally, some states don’t specifically define digital goods or services in their tax code, leaving their taxability open to interpretation.