Digital streaming and technology platforms: disparity in sales tax treatment.

• Author: Jensen, Jennifer

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States adopt various approaches for applying sales and use taxes to digital content streaming and technology platform services.

Without a doubt, technological innovations have changed many aspects of people's lives. For example, people can use their phones to hail cabs, track their location, and pay their fare. They can read the latest news or books and rent movies from the comfort of their homes, sitting in a cafe, or traveling on an airplane. Unfortunately, these technological innovations create complex sales and use tax issues for businesses, consumers, and tax agencies.

Two of the most ubiquitous technological innovations--digital content streaming services and technology platform services--have garnered increased attention by states and the general public in recent years. Digital content streaming services involve the temporary transmission of digital content such as videos, music, or games, commonly provided through online streaming services such as Amazon Prime, Apple Music, Hulu, Netflix, and Spotify. These streaming services are different from traditional sales of digital media, where content is permanently downloaded and owned by the purchaser. Technology platform services encompass the technology and software processes through which vendors market products to consumers. Online marketplaces such as Airbnb, eBay, Godaddy.com, Hotels.com, and Uber are just a few examples of businesses that offer technology platform services.

To understand sales tax treatment of digital content streaming and technology platform services, the answers to the following questions are key:

* What exactly is being sold?

* Who is doing the selling?

* How do the states define and, hence, tax transactions?

* If a tax does apply, who is responsible for collecting it?

At face value, these questions would appear to have simple answers. However, this column includes examples and scenarios from different states that demonstrate the contrary, and it illustrates the various approaches those states follow.

Digital Content Streaming Services

As the trend for streaming content continues to grow, many consumers do not pay for permanent possession of content but rather for a subscription to a content library. As the following examples in Chicago, Florida, and Idaho demonstrate, there can be significant differences in the tax treatment of streamed (or rented) content among jurisdictions.

Chicago Amusement Tax

The Chicago Department of Finance in a 2015 ruling addressed the taxability of digitally streamed content under its amusement tax statute. (1) The ruling...