ARIZONA
HOUSE OF REPRESENTATIVES
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HB 2479: TPT; digital goods and services |
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PRIME SPONSOR: Representative Ugenti-Rita, LD 23 BILL STATUS: Ways & Means
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Relating to the taxation of digital goods
and services.
Provisions
Taxation
1. Expands the retail TPT Classification to include the business of:
a. Licensing for the use of prewritten computer software, regardless of delivery method; and
b. Selling specified digital goods, transferred electronically. (Sec. 5)
2. Excludes gross income from the sale, lease or licensing of specified digital services or remotely accessed specified digital goods that are not transferred electronically, from taxation.
a. Specifies this exclusion doesn't apply to the online lodging marketplace TPT classification.
b. Stipulates each of the following do not change the characterization of a digital good or service as being excluded from taxation:
i. The ability to receive, view, save, listen to or print a specified digital good or the output of a specified digital service.
ii. The transfer of any transitory or temporary downloaded files.
iii. The transfer of any transitory or auxiliary application, including applets, cookies or plug-ins. (Sec. 2)
3. Authorizes a municipality to impose a tax on licenses for the use of prewritten computer software, regardless of delivery method and specified digital goods transferred electronically, but only as retail TPT under the Model City Tax Code. (Sec. 6)
4. Prohibits a municipality or other taxing jurisdiction from levying a TPT or use tax on specified digital services and on specified digital goods that are remotely accessed and not transferred electronically. (Sec. 6)
Sourcing and MPU Certificates (Sec. 4)
5. Requires prewritten computer software and specified digital goods to be sourced, as follows:
a. To the seller's business location if the seller receives the order in Arizona.
b. To the purchaser's location in Arizona if the seller receives the order outside of the state.
6. Allows a seller to deduct the entire sale of prewritten computer software or specified digital goods that will be available for concurrent use and access by the purchaser's employees if the purchaser provides a properly completed MPU certificate.
7. Authorizes a purchaser with a MPU certificate to use any reasonable method of apportionment that is supported by the purchaser's books and records as they exist at the time the transaction is reported for TPT and use tax purposes.
8. Requires a purchaser with a MPU certificate to report and pay the appropriate tax to each jurisdiction where concurrent use and access occur on a periodic basis.
a. Specifies the taxes due are to be calculated as if the apportioned amount of the prewritten computer software and specified digital goods had been delivered to each jurisdiction where the sale is apportioned.
9. Instructs DOR to prescribe the form for a MPU certificate to be used by a person that purchases prewritten computer software or specified digital goods for concurrent use by the purchaser's employees in multiple states. (Sec. 3)
Legislative Intent (Sec. 8)
10. States it is the Legislature's intent that after the effective date of this Act:
a. Proceeds from licenses for the use of prewritten computer software, regardless of delivery method and specified digital goods that are transferred electronically to the purchaser are subject to TPT; and
b. Proceeds from the sale, lease or licensing of specified digital services, regardless of delivery method and specified digital goods that are remotely accessed by the purchaser and not transferred electronically are excluded from state and local TPT.
11. Stipulates this Act is not intended to affect and may not be cited or applied in any administrative or judicial action, pending on the effective date of this Act, that considers the interpretation or application of any statutory or administrative provision regarding the taxation of digital goods and services.
Definitions (Sec. 1)
12. Computer – An electronic device that accepts information in a digital or similar form and manipulates it for a result based on a sequence of instructions.
13. Computer software – A perpetual or subscription license to a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.
14. Computer software maintenance contract – A contract that obligates a computer software vendor to provide customers with future updates or upgrades to computer software.
15. Prewritten computer software – Computer software that isn’t designed or developed by the author to the specifications of a specific purchaser.
a. This does not include software that is modified or enhanced to the specifications of a specific purchaser for which the seller's books show the gross income from the modification or enhancement separately.
16. Remotely accessed – Specified digital goods or services that are streamed, accessed or viewed through the internet or an equivalent or successor protocol.
17. Specified digital goods –
a. Digital audiovisual works – A series of related digital images that, when shown in succession, impart an impression of motion, together with accompanying sounds, if any.
b. Digital audio words – Works that result from the fixation of a series of musical, spoken or other digital sounds, including ringtones.
c. Digital books – Digital works that are generally recognized in the ordinary and usual sense as books.
18. Specified digital services – Cloud-based or remotely accessed computing services, including:
a. Software as a service – The capability provided to a purchaser to use the provider's applications running on a cloud infrastructure. The applications are accessible through a client interface, web browser, e-mail or program interface. The purchaser does not manage or control the underlying cloud infrastructure.
b. Platform as a service – The capability provided to a purchaser to deploy onto the cloud infrastructure, purchaser-created or acquired applications created using tools supported by the provider. The purchaser does not manage or control the underlying cloud infrastructure and has no control over the deployed applications and configuration settings.
c. Infrastructure as a service – The capability provided to the purchaser to provision processing, storage networks and other computing resources if the purchaser:
i. May deploy and run arbitrary software;
ii. Does not manage or control the underlying cloud infrastructure;
iii. Has control over operating systems, storage and applications; and
iv. May have limited control of selecting network components.
d. Application service providers – Persons that offer purchasers access to third-party software applications over the internet using a standard protocol.
e. Hosting services –
i. The operation of one or more data centers that enable customers to access websites, e-mail, files images games or other applications using dedicated or shared servers connected to the internet.
ii. Providing colocation services, including the providing of a data center environment where customers are provided a building, air, handling power, internet access and physical security.
iii. Providing a person's customers with access to websites, e-mail, files, images, games or other applications using dedicated or shared servers within a colocation facility, not owned by the person.
f. Data storage management – Providing a purchaser with services to store and retrieve data, software and other digital content on the provider's servers.
g. Data processing and information services – Services that allow data to be generated, acquired, stored, processed or retrieved and delivered by an electronic transmission to a purchaser if the purchaser's primary purpose for the underlying transaction is the processed data or information.
h. Streaming services – Subscription-based access to movies, television, music, books or other digital content through the internet or wirelessly as a steady, continuous flow, if the subscription does not include digital products that are transferred electronically.
i. Digital authentication services – Electronic services used to confirm the identity of persons or websites in order to provide secure electronic commerce and communications.
j. Any other cloud-based or remotely accessed computing service.
19. Transferred electronically – The electronic delivery or transfer in whole of specified digital goods to a purchaser or to a purchaser's computer or device, not by remote access.
Miscellaneous
20. Makes technical and conforming changes. (Sec. 1,2,4,7)
Current Law
A.A.C. R15-5-154(B) specifies gross receipts from the sale of computer software programs are taxable, regardless of the method that a retail business uses to transfer the programs to its customers.
Additional Information
TPT is imposed on a vendor for the privilege of conducting business in Arizona. Under this tax, the seller is responsible for remitting to the state the entire amount of tax due based on the gross proceeds or gross income of the business. While the tax is commonly passed on to the consumer at the point of sale, it is ultimately the seller’s responsibility to remit the tax. TPT is broken down into 16 different classifications, one of which is the retail classification. The retail classification is comprised of businesses selling tangible personal property at retail.
Use tax is assessed on items purchased in other states and brought into Arizona for storage, use, or consumption and for which no tax or a tax at a lesser rate has been paid in another state. Use tax is imposed on all transactions in which TPT was not.
The Ad Hoc Joint Committee on the Tax Treatment of Digital Goods and Services was established in 2017 to study Arizona's current statutes regarding the tax treatment of digital goods and services, along with current legal issues, administrative implications, the tax impact within the state, etc. The Committee ultimately concluded that businesses, taxpayers, DOR and local taxing authorities needed statutory direction regarding the taxation of digital goods and services and recommended that the Legislature provide such clarity through legislation in the 2018 session.
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Fifty-third Legislature HB 2479
Second Regular Session Version 1: Ways & Means
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