Understanding Tax Exemptions and Taxables

Digital goods and services Taxation of digital goods - — ― — Majority of states have moved to tax digital goods- e.g., e-books, downloaded movies, digital audio products. These are generally tax substitutes for goods previously sold only in tangible (otherwise taxable) form. Some major states- New York, Florida, California-do not tax such products currently. Complexities lay in defining/classifying items and sourcing to the place of use. Taxation of streaming services - - - States are increasingly taxing streaming services, i.e., digital goods that are not downloaded to user's device. Fewer states do so than tax downloaded digital goods. Greatest challenge is that states take varying approaches to imposition which can substantially increase risk. Taxation of digital services - ― Uneven taxation of "cloud" products and services; approaching half of the states that tax SaaS — without necessarily defining what is SaaS. Challenge in sourcing and apportionment (i.e. allocating use of software among various jurisdictions). KPMG © 2021 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 22 22

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