Bill creates needed framework to tax digital goods and software

The Arizona Capitol Times
Monday, March 12, 2018
Sean McCarthy

Did anyone else notice their bill for cloud storage went up last year because a sales tax (TPT) suddenly appeared? As an association who follows state tax law closely, we wondered what law or rule changed. It turns out nothing changed. Bureaucrats at the state simply decided to start taxing the cloud.

We investigated how other states are taxing digital goods and services. Short version: Arizona is way behind. Arizona has no laws governing the taxation of digital goods and services and yet the state began telling some companies one at a time they were taxable. Without a legal framework, Arizona is exposed to a class-action lawsuit from any number of companies which could blow a massive hole in state coffers.

States around the country are debating which digital products should be taxable. To wit, Arizona is the only state with a similar taxing framework who is trying to tax cloud services without a single law change enabling the tax. We say “trying” because there is absolutely no uniformity among taxpayers. It’s a mess.

Knowing how difficult it would be to solve, we participated in a robust Study Committee to resolve this crisis. We spent countless hours listening to experts on how to properly apply TPT to digital products. The committee (including the cities) unanimously agreed the state must act to provide clarity.

HB2479 and SB1392 create a framework to apply TPT to software and certain digital goods. In the final stages, some cities and their representatives have cavalierly spread the false rumor that cloud services have been taxable for over 25 years and this bill is a tax cut.