Georgia residents/businesses can expect to pay a bit more on digital downloads, thanks (or no thanks) to a recently signed bill. The majority of states tax digital products in some form or fashion, and Georgia is hopping on the bandwagon. As more Americans are consuming “digital content” that is “streamed” to them over the Internet rather than accessing that content by purchasing tangible property (such as DVDs) on which it is stored, the state of Georgia looks to even the playing field between those who sell content online and those who sell the tangible counterpart.
On May 2, 2023, Georgia Governor Brian Kemp signed Senate Bill 56 into law. Effective January 1, 2024, the bill imposes sales and use tax on the retail sale of (1) specified digital products and (2) “other” digital goods, if users located in Georgia receive the right to permanently access the specified digital products. Possession of the specified digital goods, other digital goods or digital codes is not required.
Senate Bill 56 imposes the new tax by amending Title 48 of The Official Code of Georgia Annotated (O.C.G.A.) to include the following: §48-8-2 will be amended to include in the list of taxable transactions the sale of two new categories, “Specified digital products” and “Other digital goods,” as follows.
“Specified digital products”:
- Digital audio-visual works means “any series of related images, together with accompanying sounds, if any and which, when shown in succession, impart an impression of motion.”
- Digital audio works means “digitized works that result from the fixation of a series of musical, spoken, or other sounds. Such term shall include digitized sound files that are downloaded onto a device and that may be used to alert an end user with respect to a communication.”
- Digital code means “a key, activation, or enabling code that conveys a right to obtain one or more specified digital goods or other digital goods. Such term shall not include a code that represents a stored monetary value that is deducted from a total as it is used by the purchaser or a redeemable card, gift card, or gift certificate that entitles the holder to select specified digital goods or other digital goods of an indicated cash value.”
“Other digital goods” include the following items:
- Video or audio greeting cards
- Video games or electronic entertainment
Retailers will be required to collect sales tax on in-state sales of digitally downloaded products, including books, video games, music, photographs, and artwork. Under the new tax law, a purchase of an audio book or video game that previously cost $100 tax free will cost an extra $6-$8 in sales tax.
There are two conditions that, if satisfied, make a digital purchase taxable. First, under the transaction the end user must receive the right of permanent use of such products, goods, or codes. Second, the transaction must not require the end user to make continued payments.
It is important to note that online subscription-based services such as Netflix and Spotify would not be taxable under the new law. On the other hand, the purchase of a particular movie or series on a subscription-based service would be taxable if the purchase is permanent. If the user only has access for a limited time, the purchase would not be taxed.
Georgia now joins the ever-growing list of states that tax digital goods and estimates that this new law will increase state revenue by hundreds of millions of dollars in the years to come.
Senate Bill 56 will also prevent the taxation of resales by amending O.C.G.A. §48-8-30 and §48-8-38.
The Georgia exemption for prewritten computer software delivered electronically by means of load and leave remains in effect, but as amended by Senate Bill 56 this exemption expressly excludes the taxable sales of specified digital products, other digital goods, or digital codes.
From a business perspective, there are a couple of things to keep an eye on. It appears that certain advertising purchases such as audio and video commercials would be taxable as a “Specified Digital Product”, similar to Ohio. It will be interesting to observe how the Georgia Department of Revenue chooses to treat these types of advertising purchases in the coming years. And, if a business purchases a digital good to be disbursed and used by employees throughout the country, will there be an exemption for Multiple Points of Use (MPU)? These are just a couple of things to watch moving forward as states attempt to apply tax in the ever-changing digital world.
If you would like to learn more about the taxation of digital goods or any other state and local tax issue, please contact one of our professionals.