Article by Jennifer Karpchuk on “SALT Trends in Taxing the Digital Economy”
In an article published in the November issue of Journal of Multistate Taxation, Chamberlain Hrdlicka Philadelphia-based Shareholder Jennifer Karpchuk and BDO USE LLP Managing Tax Director Ilya Lipin discuss recent initiatives designed to tax certain digital activities, such as streaming services, third-party delivery platforms, and digital advertising and conversely, the potential challenges to such initiatives.
“As e-commerce booms, services shift more to virtual formats, and products are increasingly delivered by various digital means,” explain Karpchuk and Lipin. “One of the major state and local tax trends in recent years has been attempts to tax the evolving digital economy.”
Karpchuk and Lipin note that budget shortfalls due to the coronavirus pandemic will “incentivize states to raise revenue through enforcement, liberal interpretation of current provisions, broadening the base and imposing new taxes on digital goods and services.”
While states have pursued options to tax new revenue streams, they may face legal challenges.
“Streaming services, third-party delivery platforms, and digital advertising are three high-value industries that are (or maybe) the targets of state and local taxation,” Karpchuk and Lipin conclude. “As deficits resulting from the impact of the coronavirus are tallied, state and local jurisdictions will be exploring means to seal holes in their budgets through increased enforcement of existing laws and enactment of laws taxing novel revenue streams, such as digital advertising.”
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