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Sales tax on downloaded software products

rrichard63

rrichard63

Perpetual Novice
This topic is specifically about tax law in the United States. For context see here, posts #65 through #68

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Most states charge sales tax on online transactions, requiring online retailers to maintain 50-plus separate tax tables if they want to sell in every state. Some states, however, exempt specific products from their tax. These exemptions can make life for retailers even more complicated than the rates.

My own state, California, specifically exempts software downloads (where there is no physical product delivered) from sales tax. I gather that New York's rule is the same or similar. Yet eBay charges me California tax on all such transactions. In the thread linked above, it appears that FastSpring does this as well.

The topic for discussion here is: what can we, as consumers of these products, do about this situation? It's not an earth-shattering political issue, but I don't like feeling powerless about it.

I once wrote to a developer (Zapzorn) whose payment processor (Shopify) had charged me tax. They cheerfully refunded the amount of the tax, AND got Shopify to fix its database, AND gave me a free product for my trouble in reporting the issue to them. That's above and beyond the call of duty and I don't expect it as a matter of course. I will definitely remember it the next time this developer releases something new that I might be interested in.
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Believe me..... I will not soon forget the name “FastSpring “
How do you talk to a company who answers you with a computer with responses that has nothing to do with what you are texting about ?
 
If there were several thousand dollars involved in one transaction, someone would eventually have an attorney write a polite letter to the address of the agent for service of process in their corporate records. This stuff happens only because it doesn't amount to several thousand dollars until a lot of different people have been shorted by a handful of dollars each.
 
People will likely just pay the tax when the product is inexpensive...so in that respect, most won’t complain.....I’m sure that NY in my case will just look past the law, and welcome whatever income tax they can get......”and the beat goes on”
 
For me, making the ends meet solely with music while living in a country with less than great standards, that also happens to have a whopping 25% VAT rate, this is a frequent reason why I always must think at least three times before buying anything. I will always remember my entrance to the world of SA back when they've been charging for their products strictly in Pound Sterling, which is one of the most expensive foreign currencies here in Croatia. Even now with Euros, a relatively high VAT rate is the reason why I often cannot afford to buy some more expensive digital products.

As a lawyer by formal education, I could polemize forever about taxes on purely digital goods, but if they're really inevitable, I would certainly appreciate more transparency. I've encountered quite a few digital stores (even today) that don't display prices that already include taxes, at least not until the final step in the checkout process. Many times I've had to contact the vendor to ask about VAT before doing some purchases, which is quite a hassle.
 
While no one including myself likes paying sales tax. Unfortunately sales tax revenue is necessary to provide the services people and communities need to adequately provide funding for essential services,schools,infrastructure etc……
The funding has to come from somewhere,if I can afford a $50 library is paying an extra $4 for everything the tax revenue provides that big of a deal?
 
All money belongs to the state, we are just its temporary guardians, eventually it all trickles back to the treasury, before starting its journey again.

I think life would be easier if we were only taxed at one point in the cycle, like at the time you first recieve the money. Then after that no more tax. But I can also see problems with this if people are holding on to money for a long time, price rises, inflation, interest, etc.
 
Sales tax and EU VAT are a minefield. We added the Fastspring cart a few years ago as a way of trying to deal with it, especially EU VAT. As far as I know, Fastspring is the only choice for VAT.

I have a support ticket in to Fastspring now asking for clarification on the NY sales tax.

However, a google search showed this:
https://www.salestaxhandbook.com/new-york/sales-tax-taxability/software-and-digital-products

From what I can make out, "Canned Software - Downloaded" is taxable, whereas "Custom Software - Downloaded" is not. I imagine that sample libraries fall into the Canned category, unless custom made for a customer. This is probably what Fastspring is going on.

I understand the frustration. All of the sudden we seem to be paying much more in sales tax for online purchases in general. But Fastspring is just trying to comply with ever changing laws imposed by state legislatures, who are actually responsible for charging the taxes.
 
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