In the blink of an eye, the digital goods market has rapidly exploded from a niche sector to a large chunk of the eCommerce landscape. Valued at over six trillion USD as of 2023 – that number is expected to grow to over nine trillion by 2027.
Such rapid growth has revolutionized how consumers shop and sent governments worldwide into a frenzy, trying to adapt their tax policies to keep up with this new reality.
The result? A complicated set of rules and regulations spanning the North American markets – the United States and Canada. Adding fuel to the fire, each state/province has their own variations of tax rules – leaving online sellers scratching their heads in confusion and frustration.
Our aim with this blog post is to shed some light on this complex issue, covering a range of information on the for the North American markets.
This is your starting point if you’re considering expanding your business into these regions.
Digital Goods: What Are They and How Are They Taxed?
The challenge with taxing digital goods comes from their very nature – they’re intangible and can be delivered across borders instantly. This makes it difficult to determine where the sale actually took place and which government should collect the tax.
For example, if a person in Germany downloads a song from a U.S.-based music platform, who should collect the tax? Should it be Germany, where the consumer is located, or the U.S., where the platform is based?
Different countries have different rules, and this can lead to confusion for businesses selling digital goods internationally. They may need to comply with multiple tax laws, and sometimes these laws can conflict.
For instance, about half of the states in the U.S. have tried to simplify tax obligations for cross-border businesses through the Streamlined Sales Tax Governing Board. Yet even these states don’t have a standardized definition of a digital good.
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