Internet Delivery Methods. TeleStrategies Communications Taxation 2016

Transcription

1 Internet Delivery Methods TeleStrategies Communications Taxation 2016 Wednesday, May 18, 2016 This presentation is offered as informational only. It is not intended to provide professional legal or accounting advice in the presenters capacities as accountants and/or lawyers. Any conclusions presented must be reviewed against the laws and facts of the specific taxpayer circumstances.

2 How States Are Addressing New Business Models Ø Video Streaming and Downloads Ø Gaming and Virtual Currencies Ø Video Conferencing and other Platforms 2

3 Streaming and Downloads

4 What used to come like this Our Digitized Economy Now comes like this.

5 Who are some of the players Our Digitized Economy

6 How is digital content monetized? Revenue Streams Subscriptions Per viewing (limited access) Per item ( permanent access) Advertising Delivery Models Electronically downloaded to device Electronically downloaded to the cloud Streaming Per clicks

7 How are states taxing digitized content? What we are seeing? Tangible personal property Information services Digital automated services Telecommunications Software Digital goods Data processing Computer services

8 Survey of Certain States Treatment of Digital Streaming and Downloads Ø Streaming Video: q Alabama Not taxable, but under consideration q Arizona Taxable, fees to receive stream treated as rental fees for tangible personal property q Arkansas Taxable if no permanent use and contingent on continued payments = sale of subscription q Idaho Not taxable if less than permanent right of use, statutorily excluded from definition of tangible personal property q Iowa Taxation depends on who provides streaming: Streaming over Internet no tax Lease or rental of digital media taxable Streaming via gaming console no tax 8

9 Survey of Certain States Treatment of Digital Streaming and Downloads Ø Streaming Video Cont d: q Kansas Taxable q Louisiana Video on demand, pay per view non-taxable q Minnesota Via Internet or cable system taxable q Missouri Purchase or rent of content via digital streaming is not taxable; not sale or rental of tangible personal property q Nebraska Taxable 9

10 Survey of Certain States Treatment of Digital Streaming and Downloads Ø Downloadable Digital Media: q Alabama Taxable as tangible personal property q Arizona Probably same treatment as fees for streaming video, taxable q Arkansas Not taxable, exemption for permanent use q Idaho Permanent right of use taxable; rentals, not taxable q Iowa Permanent use exempt q Kansas Not tangible personal property; not taxable q Minnesota Taxable q Nebraska Taxable 10

11 Survey of Certain States Treatment of Digital Streaming and Downloads Ø Downloadable Digital Media: q Alabama Taxable as tangible personal property q Arizona Probably same treatment as fees for streaming video, taxable q Arkansas Not taxable, exemption for permanent use q Idaho Permanent right of use taxable; rentals, not taxable q Iowa Permanent use exempt q Kansas Not tangible personal property; not taxable q Minnesota Taxable q Nebraska Taxable 11

12 Survey of Certain States Treatment of Digital Streaming and Downloads Ø Prime Dilemma q Arizona q Florida Subscription membership charges are subject to transaction privilege tax under personal property rental classification because it includes access to instant video, e-books, and free shipping. Subscription membership charges for streaming or downloading of digitized movies, television shows, sporting events, news events, and other video content is a communications service subject to the communications tax on that portion of the membership charge. q New York Subscription membership charges for free and discounted shipping benefits, streaming videos, a lending library for e-books, discount pricing are taxable because of the taxable shipping charges. 12

13 Gaming, In App Purchases, Virtual Currency

14 Examples 14

15 Gaming Revenue Streams q Games q Advertising q In-app purchases q Game specific currency q Platform subscriptions q Tournaments and YouTube channels 15

16 Gaming Challenges q Product classification q Sourcing q Gift cards, currency, challenges q Tournaments and YouTube channels 16

17 Games, In-App Purchases, Game Points, Virtual Currency q Idaho Online digital goods, including games are taxable q Illinois Online digital games are subject to Chicago s amusement tax q Kansas Mobile point-of-sale device was subject to tax as a coin-operated amusement Online access codes on third party server were not taxable; redemption for online digital content on third party servers are not taxable; codes for downloaded games or add-ons were taxable as downloaded software; sales tax does not apply to subscription time to access online networks or to download digital content because there is no sale of software. q Missouri Mobile point-of-sale device was taxable on the lease of the device, but the content charges were not taxable q New York Downloaded up games taxable, remote access games taxable, in-app purchases taxable, subscription and point cards taxable, nominal gift cards not taxable until redeemed q Tennessee Video game digital products are taxable July 1, 2015 whether permanent or temporary q Virginia Video game console point cards, video game online memberships, and online points cards are not taxable 17

18 Ø IRS Virtual Currencies - Guidance from the Feds q Virtual Currency: a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value q Convertible Virtual Currency: Virtual Currency that has an equivalent value in real currency, or that acts as a substitute for real currency Bitcoin: It can be digitally traded between users and can be purchased for or exchanged into, U.S. dollars, Euros, and other real currencies q U.S. does not recognize Virtual Currency as Currency; it does not have legal tender status in any jurisdiction. It is treated as property 18

19 Virtual Currencies - Guidance from the Feds q Convertible Virtual Currency (CVC) The sale or exchange of CVC, or the use of CVC to pay for goods or services in a real-world economy transaction, has tax consequences that may result in tax liability Basis of CVC that taxpayer receives as payment for goods and services is the fair market value (FMV) in U.S. dollars as of the date of receipt Taxpayer determines FMV IRS relies on Financial Crimes Enforcement Network (FinCEN) interpretive guidance 19

20 States Transactions Paid for by Virtual Currency Ø Subject to Sales Tax: q California Use equivalent to barter, exchange, trade-ins, and foreign currency transactions Identifies Bitcoin, Litecoin, Dogecoin and Peercoin Measure of tax is the total amount of the sales or lease Documentation to support total amount used q Kentucky Relies on IRS treatment as property and not currency Requires amount of sale or use to be converted into U.S. dollars Applies 6% tax rate to Virtual Currency transactions Documentation to be maintained to verify value at time of transaction 20

21 States Transactions Paid for by Virtual Currency q New Jersey Conforms to the federal tax treatment of Virtual Currency Imposes sales and use tax on the receipts from sales of tangible personal property, specified digital products, and enumerated services Sale includes a barter transaction, which includes two separate sale transactions Sales or use tax is due from each party based on value of property or service Tax owed based on market value of the CVC at time of the transaction, converted to U.S. dollars q New York Terms Sale and Purchase include a barter transaction Use of CVC to pay for goods or services treated as barter transaction 21

22 States Transactions Paid for by Virtual Currency q New York Cont d Goods and Services received in trade for CVC are subject to sales tax based on Market Value of the CVC at time of transaction, converted to U.S. dollars Sales tax to be separately stated Maintain Books and Records Report and remit sales tax q Wisconsin If CVC redeemed for taxable product, Sales or Use tax applies at time of transaction Tax based on value of consideration received measured in U.S. dollars as of the date CVC received q Sale of Virtual Currency itself is not taxable, deemed to be in tangible property or right in Missouri, New York and Wisconsin 22

23 Video Conferencing and Other Online Platforms

24 Video Conferencing and Other Communications Delivery Methods q Arizona Video Conferencing: If no equipment in state, no intrastate telecommunications service; no sales tax Online Research Database via Web Portal: subject to sales tax as a rental of software to conduct research q Arkansas Video Conferencing: taxable as an ancillary service q Idaho Video Conferencing: not taxable Gaming: taxation depends on whether payment of game s major features is conditioned on continued payment q Iowa Video Conferencing: possibly. Digital Photographs: transfer from photographer computer to customer s USB drive not entitled to a digital goods exemption such as transfers via or a website 24

25 Video Conferencing and Other Communications Delivery Methods q Kansas Video Conferencing: taxable q Minnesota Video Conferencing: taxable ancillary service q Missouri Video Conferencing: Determined to be Telecommunication Service subject to sales tax Text Messaging: Sales tax applies to subscription service sold to business to permit orders by patrons via text messaging 25

26 Other Platforms

27 Software Advertising services Custom software services Analytics/information services Non-taxable service Hosting Digital goods Transportation company Hotel/occupancy company Telecommunications Donations What is a platform?

28 Other Platforms q Georgia Meals sold through a taxpayer s online marketplace for personal chefs and caterers were subject to tax. q Missouri Charges for a taxpayer s cloud-based text messaging service are subject to tax as telecommunications services. q New Jersey Donations through a crowd funding website are not taxable. However, sponsor must pay sales or use tax on items sent to donors. q Rhode Island Platform for rental of short-term residential rentals must collect appropriate taxes on behalf of property owners. q Utah Online banking product was taxable even though it was the customer s customer who used it. 28

29 Thank You Jamie Brenner Partner, PwC New York, York (646) Cherie Kiser Partner, Cahill Washington, DC (202) Jennifer Jensen Director, PwC McLean, Virginia (703)