By Jason R. Brown
Originally published on November 8, 2023 in the Baton Rouge Business Report’s 2023 Forty Under 40, Pg. 82
Taxing the digital economy is the latest, expanding frontier in state and local taxation. With digital goods and services making up an ever-larger share of the economy, the move to tax was inevitable; but what is considered taxable greatly impacts businesses’ bottom lines. The most infamous tax is Maryland’s first-of-its-kind Digital Advertising Gross Receipts Tax, widely understood to target the tech giants. But states have recently begun (more broadly) to tax digital goods and services that businesses consume every day, often casting a wide net for what qualifies.
The Louisiana Department of Revenue was out front in this arena, issuing in 2010 Revenue Ruling 10-001 which purported to “examine the taxability of transactions involving the purchase or use of software, stored data, and other tangible- personal property, located in-state and out-of-state.” The ruling addressed “whether Louisiana (sales/use) tax is due on the purchase or use of products, computer software and applications, or stored media and/or other materials electronically delivered into Louisiana…”
Relying on an expansive reading of the Louisiana Supreme Court’s 1994 decision in South Central Bell Telephone Co. v. Barthelemy, the agency reasoned that digital materials – intangible lines of code – are taxable as “tangible personal property” because they must be accessed via tangible media (monitors, tablets, phones). It attempted to fit the square peg of digital goods and services into the round hole of “tangible personal property” to include identified digital products and services. In Louisiana’s last legislative session, two bills (HB 257 and 423) sought to expand the definition, too, to include numerous digital goods and services, some defined narrowly but others broadly. The bills did not pass, but there is little doubt expanded taxation is on the horizon in the next fiscal session (2025). While the bills only applied to state taxes, there is little doubt local jurisdictions will seek expansion, too. The potential for taxing many of the digital goods and services businesses purchase to increase efficiency and growth, often at great expense, looms large; and taxes will soon make up a greater share of businesses’ expenses, even without a change in rates.