I’d say that it’s a service, but I am not a lawyer, not a CPA, and not a tax collector.
It seems to fail the “good” test I use… if The Chicago Reader sold you a “good”, precisely what is it that you take home from the transaction?
It seems that you’re really paying for the following:
Rent on a web and database server.
Labor associated with maintaining the above-mentioned items.
The Uniform Commercial Code, which governs sales in every U.S. state except Louisiana, defines “goods” as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities … and things in action. ‘Goods’ also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty.”
I don’t see how any of that applies here; no movable object has changed hands, and those other things are far removed from the situation. Looks to me like the Chicago Reader has sold you a service, specifically, the use of its message boards.
So if I did get a service on the internet, do I owe sales tax?
The state of Illinois is making noise (and other states are too, I believe) about citizens having to sign something about how much they purchase on the internet yearly, and then having to pay sales tax.
In many states, services are subject to sales taxation. In Ohio, the relevant statutes are Sections 5739.01 and 5739.02. Enjoy the reading; I stopped bothering with 5739.01 at subsection (B) (3) (u). :rolleyes:
Correct me if I’m wrong, but is it not the responsibility of the seller or service provider to pay sales tax to the state? AFAIK, the buyer is not responsible for this if the seller or provider fails to collect it from them.
There are two types of such taxes: Sales Tax - this is paid by the seller, but the seller is allowed to pass along the tax to the buyer. But if the seller does not actively conduct business in the state, they don’t have to pay (and therefore collect) the sales tax.
Then there’s Use Tax: This is paid by the buyer in cases where the seller didn’t pay sales tax on the specific sale. It’s typically paid by business on purchases that were made using their “resale license” but then the product ended up being used by the business. For example, if I sell computers and I buy 10 wholesale for the purpose of selling them, then I tell the distributor not to pay or collect the sales tax, because I will pay it when I make the final sales to the consumers. However, if I end up taking one of the computers out of the box and use it to run my business, then I have to pay “Use Tax” on it.
Consumers are also supposed to pay use tax on purchases where sales tax was not collected. This is especially true for items purchased from out of state. (See above.) In practice, it’s rare except on big ticket items.
The problem with what Illinois is trying to do is that some Internet retailers do charge (and therefore pay) state sales tax on purchases made in various states (where they actively do business. That makes it an accounting nightmare for the consumers - especially if you want to track your $5 purchase here.
But back to the question - After a long detour - Yes, sales tax is paid by the seller, but if the seller doesn’t collect it, then the state asks the buyer to pay use tax - which just happens to be at the exact same rate.
What is subject to sales and similar excise tax can vary pretty significantly under state (and sometimes local municipal) law Many states have extended sales tax to a wide variety of services, and specificially included and excluded a number of types of goods.
Illinois, however, appears to limit sales tax to “a seller’s receipts from sales of tangible personal property for use or consumption” according to the state Department of Revenue. This would mean that payments to subscribe to an electronic service would not be covered by Illinois sales or use tax. (There is also a specific exemption for sales of newspapers or magazines, so a subscription to the Chicago Reader would be exempt from sales tax in Illinois, though it might be subject to use tax on the purchaser if the purchaser bought it in a state that has use tax on periodicals).
When one is talking about taxation or other specialized legal areas, I would be exceedingly wary about using legal definitions found in other areas of the law. For instance, what the Uniform Commercial Code includes in its definition of goods may be entirely irrelevant to the state tax law, which has its own definition of what is subject tax. For instance, in the Illinois statute at issue here, the term “goods” isn’t even part of the scope of the law, so discussions over what qualifies as “goods” is not germane to the question of what is subject to sales tax.
By the way, I am not an Illinois lawyer, and I don’t represent the Reader or anyone else involved. This is just stuff I picked up off the internet and not legal advice. If you have questions about your state’s tax law, talk to a lawyer in your state. Have a nice day.