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: House Engrossed |
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Relating to the taxation of digital goods
and services.
Provisions
TPT
1. Expands the retail TPT Classification to include the business of selling, renting or licensing for the use of:
a. Prewritten computer software, regardless of delivery method; and
b. Specified digital goods, transferred electronically. (Sec. 4)
2. Excludes the sale, lease, licensing, purchase or use 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. Requires a municipality that imposes a retail TPT to impose a tax on sales, rentals or 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. 8)
Use Tax (Sec. 6,7)
5. Establishes a tax on the use or consumption in this state of prewritten computer software and specified digital goods transferred electronically as a percentage of the acquisition price.
a. Specifies the tax applies to any purchaser that purchases the items for resale but subsequently uses or consumes the items.
6. Sets the tax rate at the state TPT rate, plus the proposition 301 TPT rate (5.6%).
7. Specifies a receipt from an Arizona retailer is sufficient to relieve the purchaser from use tax liability.
8. Stipulates all state use tax exemptions are applicable as if prewritten computer software and specified digital goods transferred electronically were tangible personal property.
9. Directs each vendor maintaining a place of business in Arizona that sells prewritten computer software or specified digital goods transferred electronically for use or consumption in the state to collect the use tax from the purchaser unless the purchaser is exempted or pays the tax directly to dor.
10. Requires each person subject to use tax to file a return, under oath of affirmation, with dor by the 20th day of the month following the purchase that shows the amount of property sold, leased or license for use in this state.
a. States the taxes are delinquent if not paid by the last day of the month following the purchase, unless extended by dor.
11. Describes the process for filing and making a direct payment of use tax to dor.
Sourcing (Sec. 3)
12. 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.
i. Allows a purchaser's billing address to be used in the absence of a delivery address.
Legislative Intent (Sec. 10)
13. States it is the Legislature's intent that after the effective date of this Act:
a. Proceeds from sales, rentals and 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 use tax; 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 and use tax.
14. 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. 1,5)
15. 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.
16. 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.
17. Computer software maintenance contract – A contract that obligates a computer software vendor to provide customers with future updates or upgrades to computer software.
18. 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.
19. Remotely accessed – Specified digital goods or services that are streamed, accessed or viewed through the internet or an equivalent or successor protocol.
20. 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 works – 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, articles, periodicals and other pre-written works.
21. 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 accessible from various client devices over the internet.
b. Platform as a service – The capability provided to a purchaser to develop and deploy onto the cloud infrastructure, purchaser-created or acquired applications created using tools supported by the provider and the purchaser.
c. Infrastructure as a service – The capability provided to the purchaser to acquire processing, storage networks and other computing resources over the internet.
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. Providing customers and those authorized, access to websites, e-mail, files, images, games or other applications using dedicated or shared servers located within a data center.
ii. Providing colocation services, including the providing of a data center environment where customers are provided a space to operate servers, air, handling power, internet access and physical security.
iii. Providing a person's customers and those authorized by the person's customers, with access to websites, e-mail, files, images, games or other applications using dedicated or shared servers located within a data center environment, not operated by the person.
Ø Specifies the sale, lease, license for use or rental of specified digital goods or prewritten computer software, by the person providing hosting services, is not considered hosting services.
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 – Access to movies, television, music, books or other digital content remotely accessed as a steady, continuous flow, if the service does not include the right to digital goods 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. Specified noncomputing services including legal, financial, audit, tax preparation and accounting services.
k. Any other cloud-based or remotely accessed computing service.
22. Transferred electronically – The right to 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
23. Becomes effective on the first day of the month following the general effective date. (Sec. 11)
24. Makes technical and conforming changes. (Sec. 1,2,3,9)
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 3: House Engrossed
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