For the most part, all consumer spending was for items with physical qualities, or things that could be weighed, packaged, mailed, carried, or driven. The body of sales tax law we live and work with today is based on original statutes whose logic and drafting style adhered to the predominant model of their time and focused exclusively on sales of tangible goods. At the time, no one envisioned a society where services were equally valued as products, let alone products and services delivered in cyberspace. Around the second half of the last century, a significant portion of consumer spending shifted to services where the value elements are intangible, including specialized training, experience, even raw hours and complex projects. Since a customer’s object in purchasing a service is intangible, sales tax law slowly but steadily followed the shift in consumer preferences.

By 2013, many states routinely apply sales taxes to services, yet the shift in consumer spending leaves us a body of sales tax laws originally drafted with tangible goods in mind that are now regularly, if not uniformly, applied to intangible services. Fitting Square Pegs Into Round Holes Let’s say this as nicely as possible: The adaptation and application of sales tax laws to services has not occurred uniformly across the states. There is a great deal of divergence among the states in determining how and when services are taxed: • definitions and terms are not universal, • treatment of particular services varies, • sourcing of services remains a mystery, and • almost all states rely on a variety of a “true object” or a “dominant purpose” test to determine when property sold with a service is part of the service or treated separately for sales tax purposes. No wonder this is confusing! Download Beersmith 2.0 Rapidshare here.

Adapting and applying sales tax laws to digital products has also taken dissimilar paths among the states, albeit with a few recognizable trends. Noting the crooked path taken by the states in adapting sales tax laws to services is instructive for two reasons.