Opportunity for Maryland Taxpayers: Get Credit for Taxes Paid to Other States!

Maryland taxpayers who were not permitted to claim a credit for personal income taxes paid to other states against their local income tax (i.e., City, County or Town) may still claim such a credit on a timely filed protective claim for refund for a tax year with respect to which such opportunity is still available.

Last year, the Howard County Circuit Court ruled that Maryland’s current application of the credit for taxes paid to other states is unconstitutional in so far as the credit is not allowed to offset the Maryland local personal income tax. That decision is still working its way through the appeal process and is unlikely to get to a final determination anytime soon. Nonetheless, the decision presents an opportunity for Maryland taxpayers to amend prior years’ tax returns and claim credits Continue reading »

Regulation of State Taxation of Digital Goods and Services Pending Federal Legislation

The state taxation of digital goods and services that are delivered electronically (i.e., music and book downloads) may soon be regulated under legislation currently working its way through both houses of Congress.  HR 1860 (S. 971 in the Senate), the Digital Goods and Services Tax Fairness Act of 2011, was introduced on May 12, 2011, “to promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services”.  The bill is intended to prevent discriminatory taxation on digital goods and services (such as tax imposed at a higher rate than the rate that would be applied to non-digital goods and services), and taxation in multiple jurisdictions.

Under H.R. 1860, taxes on the sale of digital goods and services may only be imposed by the state of the customer’s address.  If the sale of digital goods or services is made to multiple locations of a customer, the seller may determine the customer’s tax address using the address as provided by the customer.

The legislation also places a limitation on the expansive interpretation of existing tax laws that apply to the sale or use of tangible personal property, telecommunications services, Internet access services, or audio/video programming services that may be construed to be imposed on the sale or use of a digital good or service. 

Since digital goods and services are not tangible personal property, many states, at present, do not tax the sales of such items.  There is concern, however, by proponents of the legislation, that states – in the midst of an economic downturn – will begin aggressively seeking revenue and begin taxing digital goods and services at potentially discriminatory high rates – and in multiple jurisdictions.

Opponents of the bill, the Federal Tax Administration (FTA), point out that the bill’s provision giving exclusive taxing jurisdiction at the purchaser’s address would preclude the seller’s state from imposing a tax on the sale, potentially causing the sale to escape taxation entirely if the seller does not have presence in the purchaser’s state (since the purchaser’s state is also not allowed to impose a sales tax unless the seller has a physical presence there (Quill Corp v. North Dakota, 504 U.S. 298 (1992))).  (This is an argument used by the FTA – not necessarily the position of Aronson LLC – as there are more complex state sales and use tax laws that could apply here as a counter to the FTA’s position.)

If you offer digital goods or services of any kind, it is important to keep close track of your sales, including the states your customers are in.  You should also consult with a tax expert if you have any questions regarding compliance with state sales tax laws.

By: Laura Miller