A New York digital tax may be on the horizon

Wed Sep 30, 2015

A new fiscal brief from New York’s Independent Budget Office (IBO) has urged officials to explore a New York digital tax.

New York digital tax

The IBO is a publicly-funded agency that provides non-partisan information about New York City’s budget to the public and their elected officials. In its September fiscal brief (available here) the IBO stated that New York is foregoing significant revenue from the lack of a tax on digital services. The IBO brief states the following:

“Independent Budget Office estimates suggest that New York City would have collected $21 million in additional 2014 sales tax revenue if digital music, video, and books were made taxable, while the State would have collected $38 million more.”

New York digital tax revenue to replace that of declining physical media sales?

Underpinning this advice is the fact that sales tax revenue from physical media has declined in the past half-decade. The brief continues:

“IBO estimates that city sales tax revenue from physical media goods in 2014 was $41 million, down from $51 million in 2009, just 5 years earlier. For [New York] State, sales tax revenue from physical media goods totalled $76 million in 2014, down from $94 million in 2009.”

New York City has lost $10m in five years from declining physical media sales, while New York State has lost $18m in the same timeframe – the officials in charge of budgets will seek to make up for this shortfall elsewhere. Given that digital media sales (music, videos, and e-books) are estimated to recoup $21m in 2014 then it is a definite potential avenue for officials to explore.

The brief does add that “sales of physical media goods are unlikely to disappear entirely, so our estimates should be considered the maximum amount of tax revenue that could be lost in the course of the shift towards digital formats.”

Streamlined Sales and Use Tax Agreement

States in the U.S. that have taken the decision to tax digital services have – generally – also signed up to the Streamlined Sales and Use Tax Agreement (SSUTA).

SSUTA minimises costs and administrative burdens on merchants that collect sales tax, particularly merchants operating in multiple States. It encourages “remote sellers” (merchants) selling over the Internet, and by mail order, to collect tax on sales to customers living in the SSUTA States.

SSUTA claims to level the playing field so that local “brick-and-mortar” stores and remote sellers operate under the same rules. SSUTA ensures that all retailers can conduct their business in a fair, competitive environment.

Currently, 24 States are members of SSUTA – New York is not. If the advice from the IBO is acted upon it is likely that New York would sign up to the SSUTA principles. Membership of SSUTA is voluntary.

Taxamo support for U.S. digital tax compliance

The Taxamo solution now supports compliance with U.S. Sales & Use Tax on the supply of digital services. All via one simple integration.

From our experience of the 2015 EU VAT rules roll-out we have a deep knowledge of digital merchants’ requirements when it comes to certainty and trust.

Taxamo’s real-time solution is based on a 4-step digital tax calculation:

  • Detects customer location: Determines customer location from available evidence.
  • Identifies international tax laws that apply: Monitors international digital tax law changes and updates compliance requirements without changing merchant integration
  • Gathers additional location evidence: Based on applicable tax regulations, further customer data may be needed as part of checkout.
  • Applies the accurate tax rate: Manages tax rate tables across multiple tax regions

Digital service merchants can integrate their website with the Taxamo service via numerous avenues: using Taxamo’s RESTful API; client libraries; Taxamo’s javascript; payment gateways, or third-party plugins for the most popular shopping carts.

Note: Taxamo content is created for guidance only, please consult your local tax advisor.

Contact us to find out more about our solution