Recently Enacted Legislation Clarifies Taxability of Digital Products in Vermont

Monday, June 11th, 2012

 
 
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Vermont
General

By enacting House Bill 782 in May, Vermont has clarified that the state imposes sales tax on electronic transfers of "specified digital products," (1) regardless of whether they are transferred for permanent use or less than permanent use and (2) regardless of whether or not conditioned upon continued payment from the purchaser. 2012 Vt. Acts & Resolves No. 143, sec. 50.

Before this change, Vermont's statutes imposed sales tax on retail sales of "[s]pecified digital products transferred electronically to an end user" without mentioning rights of use or conditions for continued payment. Vt. Stat. Ann. tit. 32, sec. 9771(8) (2011). Now, the statute expressly taxes "[s]pecified digital products transferred electronically to an end user regardless of whether for permanent use or less than permanent use and regardless of whether or not conditioned upon continued payment from the purchaser." 2012 Vt. Acts & Resolves No. 143, sec. 50 (amending Vt. Stat. Ann. tit. 32, sec. 9771(8)).

Vermont is a member of the Streamlined Sales and Use Tax Agreement (SSUTA). That agreement provides rules of construction and standardized definitions for its members to use when imposing sales tax on digital goods.

As a SSUTA member, Vermont has enacted standardized statutory definitions of terms used in taxing digital products: "specified digital products," "digital audio visual works," "digital audio works," "digital books," and "transferred electronically." Accordingly, in Vermont, "specified digital products" are "digital audio-visual works, digital audio works, digital books, or ringtones that are transferred electronically."

Furthermore, Vermont's Department of Taxes (DOT) files a taxability matrix with the SSUTA Governing Board, and, in turn, the SSUTA Governing Board publishes those matrices. Vermont's SSUTA taxability matrices from 2010 and 2011 stated that Vermont imposed sales tax on the following:

  • Digital audio visual works sold with rights of use less than permanent use;
  • Digital audio visual works sold with rights of use conditioned on continued payment;
  • Digital audio works sold with rights of use less than permanent;
  • Digital audio works sold with rights of use conditioned on continued payments;
  • Digital books sold with rights of use less than permanent; and
  • Digital books sold with rights of use conditioned on continued payments.

See e.g. Vt. Streamlined Sales Tax Governing Bd. sec. 328 Taxability Matrix (Dept. of Taxes July 22, 2011). Thus, it has long been the DOT's position that all sales of specified digital products are subject to tax regardless of whether the purchaser received rights of permanent or less than permanent use and regardless of whether the purchaser's rights of use were conditioned on making continued payments.

This position was apparently problematic when considered with SSUTA rules. The SSUTA provides that a state's statute imposing a tax on "specified digital products," must "be construed as only imposing tax on a sale with the right of permanent use granted by the seller unless the statute specifically imposes and separately enumerates the tax on a sale with the right of less than permanent use granted by the seller," and it must also "be construed as only imposing tax on a sale which is not conditioned upon continued payment from the purchaser unless the statute specifically imposes and separately enumerates the tax on a sale which is conditioned upon continued payment from the purchaser." Streamlined Sales and Use Tax Agreement sec. 332.D.1 (Streamlined Sales Tax Governing Bd. Nov. 12, 2002, amend. May 24, 2012). Therefore, when the DOT interpreted Vermont's prior statute as imposing tax on sales of digital products with rights of less than permanent use or based on the purchaser's duty to continue making payments, the DOT was construing the statute in a way that conflicted with the SSUTA's rules. This apparent conflict is resolved by Vermont's new statutory language, which expressly taxes digital products "regardless of whether for permanent use or less than permanent use and regardless of whether or not conditioned upon continued payment from the purchaser."


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