Posts Tagged ‘sales tax’

Hosting Nexus in Texas

Monday, August 22nd, 2011

It’s always been a bit of a grey area about whether simply hosting servers in Texas exposed an online business to the obligations to collect sales and use tax for Texas residents. A recently enacted law that took effect in July aimed to clarify that if you’re only buying/renting software and hosting services from an internet provider in Texas and don’t have other classic components of nexus, then you have no tax obligation. This was passed to keep people like RackSpace and content delivery networks (CDNs) who host in Texas competitive. However, the Texas Comptroller of Public Accounts was out this week reminding online businesses that if they own hardware hosted in Texas, they have nexus.

Pity the digital service provider who has chosen to be PCI compliant on its own and hosts its commerce servers in centrally located and well connected Texas. With not a single Texas-based employee, the company will still have nexus because owning hardware (instead of renting it from, say, RackSpace) is a PCI necessity as the company has to able to destroy drives that have Cardholder Data on them.  As a result, he’ll also have to collect Texas sales tax for his Texas end users.

Did I mention that Texas has probably the most complex sales tax rate structure in the world?

Gene HoffmanTags: , , ,
Posted by Gene Hoffman in CEO Blog, Industry News | 1 Comment »

Launching A Digital Business – Global Expansion

Monday, June 27th, 2011

The Internet knows no borders.  As a result, digital businesses have the opportunity to instantly generate a global customer base.  Successfully managing a global presence, however, involves a number of moving parts, all of which must work together in tandem for the business to truly thrive in international markets.

The fundamental question to ask is “What are the key aspects I should consider before launching a global digital service?”

  • Payment Method Support.  The demographics of your target audience, as well individual country characteristics, determine what payment methods merchants should support.  Online payment methods can include credit cards, debit cards, direct debit, mobile carrier billing, pre-paid cards, bank transfers, electronic check, PayPal, and even regional/country-specific payment methods like Boleto Bancario in Brazil.  Before you expand into a particular region, understand which payment methods are most relevant, so you know how to successfully reach—and bill—your audience.
  • Sales Tax. Different countries tax digital content and services at different rates, and your marketing, finance, and infrastructure teams need to be aware of this critical function.  Managing the requirements of different tax regimes is increasingly a crucial part of any digital business, especially as lawmakers try and understand the ramifications of failing to comply with digital goods taxation requirements.
  • Currency and Language Localization. Pricing in local currencies and communicating with customers in their native language aids in overall customer acquisition and retention.  Though supporting this “localized” presence increases your operating costs, doing so should result in higher returns.
  • Regulations. Each country and/or region has its own set of regulations designed to protect consumers from exposure of their personal and/or financial information.  Whether these regulations are the European Data Privacy laws, PCI, or other requirements, ensure both your infrastructure and your company culture support the requisite privacy and security policies in your target markets.

By addressing the aspects explained in the above list, you are preparing your digital business to expand globally and take the world by storm.

Sanjay SarathyTags: , , , , , , ,
Posted by Sanjay Sarathy in Best Practices, Marketing Fury, Payments 101.201.301 | 1 Comment »

SaaS and Intangible Sales Tax, LA, NY, CO edition

Monday, April 19th, 2010

As the budget pain continues in state government, a couple recent events are noteworthy.

First, New York State has taken the position in an advisory opinion that a SaaS offering is taxable when software is delivered in a hosted model. Advisory opinions aren’t fully binding and the application in question was voice related which may have complicated the analysis so this may be an outlier, but it is troubling that a SaaS provider with New York nexus may be required to remit sales tax for revenue generated from New York residents. My reading of the opinion is that gaming companies have to spend some time with counsel figuring out whether their service is the software or just post software access services which generally haven’t been taxed by New York in the past. Virtual goods models should be untaxed based on Apple’s advisory opinion, but the scope of the new opinion is troubling.

In Revenue Ruling No. 10-001 the Louisiana Department of Revenue has determined that not only are non executable downloads like books, music, movies, or AV updates taxable, but is now attempting to take the position that software delivered in the SaaS model is also taxable. Reviewing Louisiana’s logic, it would appear that true SaaS offerings that do not have client software outside of the browser are not actually taxable, but that the DOR is attempting to create a broad interpretation that states that the generated html in the users browser constitutes the software.

Further, Colorado is in process with emergency regulations that look on first blush to turn CO from a SaaS/intangible goods friendly state into a problem child for everyone in all 50 states. Colorado has come up with the unique idea that they will require all vendors, regardless of nexus to email out how much use tax is due on their tangible sales or sales of executable downloadable software. In addition, Colorado has extended the definition of tangible software to include electronic transfer of the box contents equivalent. For now it appears that Colorado has not extended sales or use tax to SaaS or non-executable downloads. We will be monitoring those developments closely and I expect to post more on the Colorado use tax situation including what will almost certainly be litigation over the far reaching impacts of Colorado’s new use tax notification law due to its extra territorial effects.

Gene HoffmanTags:
Posted by Gene Hoffman in CEO Blog | 1 Comment »

How Complex Can Sales Tax Be?

Monday, February 1st, 2010

Brett Thomas, our CTO, occasionally jokes that if he knew in advance how complex building a sales-tax module in Vindicia CashBox would be, he’d never have done it. Given how much change is afoot as states gear up to tax digital content, Brett’s decision to include that feature in CashBox boded well for our clients.  At last count, 18 states have explicitly imposed tax on digital content and many more state legislatures are contemplating it.

The nuances of sales tax are complex: What comprises nexus? How do you classify your service or product? How do you calculate VAT or GST for global transactions?  What’s the difference between use tax and sales tax?  Also, speaking of nexus, did you know that having data centers in some states can expose you to nexus there?  Texas is a good example.  If you have distributed computing facilities (for example, if you’re a cloud-computing provider of some sort), do heed the ramifications.

To learn our approach in determining and computing sales tax for online businesses of intangible goods and services, read this white paper [PDF].  Calculation of sales tax might not be the most exciting topic on the cocktail circuit; however, our clients deem it a critical one as they navigate through the requirements of selling content online.

Sanjay SarathyTags: , ,
Posted by Sanjay Sarathy in Marketing Fury | No Comments »