State taxes on digital goods are becoming increasingly common, requiring advance planning for companies.
Maryland recently passed legislation that adjusted the definition of a “digital product” as it applies to sales and use taxes. This comes on the heels of the state’s widely-discussed digital advertising tax, which imposes a levy of 2.5 to 10 percent on gross revenue from digital advertising services. Both measures are an emblem of the increasing attention being given to the digital economy and taxation on new technologies.
For businesses with digital products and services, complying to these new tax rules requires careful planning to ensure the company is assessing, collecting, and remitting taxes accurately. Tax departments, IT, marketing, and product teams must work together closely to evaluate whether a product is taxable by law and to gather customer information.
Maryland’s digital product provisions are similar to those in place in other states, but key differences include listing software as a service (SaaS) as a digital good and shifting the burden of determining taxes from the purchaser to the seller who must now account for any product and services tax exclusions.
On the other side of the US, New Mexico has also announced the state’s regulations will be updated to clarify its tax policy on digital advertising—namely that the unique gross receipts tax applies to online ads that target the state’s residents.
Changes to the electric vehicle credit could make the criteria much stricter than before. As Democrats struggle to align on a potential $433 billion economic package, one of the contested items is a plan by Senator Joe Manchin to restructure the EV tax credit. Concerns over the proposal stem from its new requirements for how materials for electric vehicles can be sourced—specifically that a certain percentage of battery components and key minerals must be extracted and processed in North America. Some lawmakers worry that the current terms in the bill are too restrictive, and automakers will not be able to meet the requirements quickly enough for the measure to have the intended impact.
The current EV tax credit offers up to $7,500 for qualifying vehicle purchases. The proposed legislation would create an additional $4,000 tax credit for used electric vehicles and lift the cap that restricts the credit to the first 200,000 EVs sold by each manufacturer. Lastly, the bill provides billions in loans and grants for domestic automotive and battery manufacturing, as well as commercial vehicle credits.
If the new legislation passes, the EV tax credits would apply to cars with suggested retail prices of $55,000 and under or trucks, vans, and SUVs priced at $80,000 and under. President Biden has stated that his objective is for 50 percent of all new vehicles sold to be electric by the year 2030.