1. Digital Goods & Wayfair
Trending TPT Issues:
Digital Goods & Wayfair

2. Trending TPT Issues Digital Goods South Dakota v Wayfair
What Is It?
Legislative History
What’s Next?
South Dakota v Wayfair
What is Nexus?
What Did the Decision Say?
What Does This Mean in Arizona?
Please hold questions until the end

3. Digital Goods What is it? Delivery of products over the Internet
Movies, music, books, software, etc.
Anything delivered in a file or as a stream of data to the user’s device
Tangible Personal Property (TPP)
“…seen, weighed, measured, felt or touched or is in any other manner perceptible to the senses.”
AZ v. Jones (1943) – A song played on a jukebox is TPP and subject to the tax

4. Digital Goods Legislative History
Ad Hoc Joint Committee on the Tax Treatment of Digital Goods and Services
Update statutory definitions
Determine exempt digital goods and services
Determine taxable digital goods and services
Provide uniform state and local tax treatment
Clarify sourcing and nexus
HB 2479/SB 1392, Digital goods & services
At least 8 new exemptions vs. current treatment
League estimated $121M State, $45M Local and $14.5 Prop 301 losses

5. Digital Goods What’s Next? Expect the Digital Goods bill to return
League will continue to oppose any:
Changes that go beyond clarification of current tax treatment, sourcing and nexus
Fair and equal treatment in taxation of all products, regardless of delivery method
The other wrinkle: South Dakota v Wayfair
Eliminating the physical presence requirement makes remote sellers subject to TPT

6. South Dakota v Wayfair What is Nexus? IL v National Bellas Hess (1967)
Quill v ND (1992)
Physical presence in a state is required for the state to impose its sales (TPT) tax
Includes stores, inventory, visiting salesmen, delivery by your truck, agents, etc.
South Dakota v Wayfair
SD passed “economic presence”
Minimum of $100,000 in sales, or 200 total transactions

7. What Did the Decision Say?
South Dakota v Wayfair
What Did the Decision Say?
Physical presence rule of Quill was unsound and incorrect - overturned
Commerce Clause issues should be based on test in Complete Auto Transit v Brady
“Substantial” nexus with the state
Fairly apportioned
Doesn’t discriminate against interstate commerce
Fairly related to services the state provides

8. What Does This Mean in Arizona?
South Dakota v Wayfair
What Does This Mean in Arizona?
Many states have announced application of Complete Auto standard as of Oct. 1
Amazon is forcing all 3rd party sellers to license and begin collecting taxes
ADOR is gathering information: other state treatments, laws, effective dates, etc.
No enforcement activity being taken currently
Waiting for expected legislative action
Beware the “windfall” myth

9. Questions?
(Ask Lee)
Tom Belshe Deputy Director Lee Grafstrom Tax Policy Analyst