SALT Technology Checklist

1st Quarter 2023 – A quarterly publication that summarizes technology-related state tax guidance and legislative developments

States are increasingly attempting to address the application of tax to emerging technology and business models through new law, court cases, and administrative rulings. Tracking developments is critical not only for technology providers, but also for purchasers of technology.

To make recent developments more accessible, the KPMG Washington National Tax –State and Local Tax practice has created a quarterly Technology Checklist that summarizes recent state guidance for topics such as access to telecommunications services, web-based services, software, and streaming services.

Highlights of the 1st Quarter 2023 checklist include:

Alabama: The taxpayer convinced the Alabama Department of Revenue that royalty payments for licensing medical billing codes were not subject to sales and use tax. The taxpayer licensed its software using the billing codes to customers but did not specifically charge them royalty payments. The Department ruled that the copyright owner did not transfer title to the billing codes to the taxpayer, and, therefore, the agreement with the copyright owner did not constitute a sale or exchange of the codes.
Arizona: The Arizona Court of Appeals upheld a lower court’s decision that a human resource services provider was selling software rentals subject to Transaction Privilege Tax. The court concluded that the application software was “perceptible” to users, and that the users were exerting control over the software. The court further held that the tax did not violate the Internet Tax Freedom Act (ITFA) because the taxpayer’s product simply automated tasks that were previously done by human effort.
Louisiana: TheLouisiana Board of Tax Appeals held that subscriptions to a cloud-based storage plan were not subject to New Orleans city sales taxes. The Board agreed with the taxpayer that its cloud storage services were included in the definition of “Internet Access” under the Internet Tax Freedom Act. Therefore, the City could not impose sales taxes on subscriptions to the service sold to customers located in the city.
Kentucky: Kentucky House Bill 360 expands the definition of taxable telemarketing service to include services provided to another person via text message. This change is currently effective retroactively to January 1, 2023.

Many more developments are covered in the Techlist - download it below.