Consumers have already ditched the discs and are going digital, but taxes – like water – can find a way into nearly anything.
Digital books, movies, and music have revolutionized the music, entertainment, and publishing industries. Sales of ebooks totaled more than $3 billion in 2012. Digital music sales rose more than 9% in 2012 alone, with sales of hard copy music albums dropping more and more each year.
But where the consumers go, new taxes follow. Bean counters at various statehouses noticed the digital sales revolution, and realized their coffers were losing out on more and more revenue.
States soon instituted sales taxes for digital goods, and more states are following suit. Minnesota passed a digital goods tax in July 2013. Wyoming, Vermont, and Mississippi tax music from online retailers like iTunes. New Jersey and Utah charge consumers a tax on ebooks.
Apps for cell phones and tablets are a mixed bag. Some states don’t have a digital goods tax, but tax the apps just like they do with software purchases. Even streaming movies and television shows are taxed. Washington state taxes monthly subscriptions to sites like Netflix. Florida also taxes streaming services, but gives consumers a break by avoiding a digital goods tax.
Pretty soon, more and more states will likely institute a tax on some, if not all, digital goods. Congress is debating legislation that would enable states to require online merchants to collect sales taxes. It’s an attempt to level the playing field between the old-fashioned brick and mortar stores and the increasing presence of ecommerce.
One way or another, everyone gets hit with taxes, and they follow consumers into all industries and all streams of commerce. But sometimes taxes seem to come out of nowhere and leave you with a tax bill that’s bigger than expected.
Whether it’s a traditional storefront or ecommerce platform run out of a laptop, no business is immune from back tax debt. Working with a tax professional is the best way to manage a business’s seemingly unmanageable finances and get the ledger – and tax bill – back in order.
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