Benjamin Franklin is often quoted as saying that nothing in life that is certain except death and taxes. In light of all of the battles over online sales taxes, perhaps taxes are not as certain as we think. Consider the state-by-state challenges that etailers are having with various states: Virginia may collect taxes, Texas won't. Here is a pretty good overview of how various states treat online sales taxes.
So not even taxes can be said to be certain anymore (at least in the online context). But to help alleviate some of the confusion surrounding this topic, California has provided a little bit of guidance for online companies of all stripes.
Our colleagues at the Taxing Tech blog have a great article on what the new California guidance means. For anyone involved in digital distribution of games, apps, ebooks, or the like, it's a must-read. And while we won't duplicate the insightful comments of our colleagues here, we thought we would provide you with some of our own thoughts on what the new guidance means:
- Sales of physical goods by California companies are still likely to create a nexus for California sales tax purposes. This means you may want to think carefully about whether your business is profiting from sales of physical media - CDs, diskettes, jump drives with pre-loaded software, etc. If the profit margin isn't as good as you think, perhaps it's time to consider online-only distribution.
- Sales of electronic products (apps, ebooks, etc.) through digital means (Apple's App Store, Android Marketplace, etc.) may not be subject to sales tax collection obligations so long as you do not provide physical back-up media along with the sale. Personally, I don't know of anyone who does this as a matter of course, but if you do provide backup copies of the software on physical media, you may want to rethink this course of action.
The bottom line is that the new guidance can be a big win for games companies that sell their products online-only. It can keep the effective cost of your products down, which can lead to greater downloads by consumers, and keep your administrative burdens low at the same time. You know what we call that? A win-win.