Effective October 1, 2006, sales tax is imposed on sales of "digital property" which is defined as the following types of property, when delivered through electronic means:
- audio and video works and similar products.
The sales tax is imposed when the customer is granted a right or license to use, retain or make a copy of such item. N.J.S.A. 54:32B-3(a).
Digital property may be received on various types of electronic equipment, for example computers, cellular telephones, or devices that store, organize and play audio or video files. The products identified as digital property are also subject to sales tax when delivered in tangible form.
By statutory definition, the term “digital property” does not include
- video programming services, including video on demand television services; and
- broadcasting services, including content to provide such services.
The tax is imposed on receipts from the sale of the digital property listed above. It is not imposed on other types of property that are delivered electronically, such as digital photographs, digital magazines, etc.
Impact of Other Statutory Sections
Although a product electronically delivered may not be “digital property,” other tax imposition sections in the Sales and Use Tax Act may apply. For example, the law imposes sales tax on “information services” provided through any means or method. Products such as mailing lists are treated as information services and are taxable whether delivered electronically or in hard copy. Although a mailing list delivered electronically is not digital property, it is subject to tax as an information service.
Services to Digital Property (N.J.S.A. 54:32B-3(b)(2))
Receipts from installing, maintaining, servicing or repairing digital property are also subject to sales tax as of October 1, 2006. For example, if a company charges to load digital music on to an electronic device such as an MP3 player, the service of installing the music is taxable, in addition to the music itself.
Sourcing of Digital Property (N.J.S.A. 54:32B-3.1)
Digital property is subject to sales tax when the property is electronically delivered to the customer at an address in New Jersey. If the property is not received by the purchaser at the seller’s New Jersey business location or at the purchaser’s New Jersey location, the sale is subject to New Jersey sales tax if either the seller’s business records or the address provided by the purchaser during the sale indicate a New Jersey billing address. For example, if a New Jersey resident is traveling in another state and downloads music to a hand held electronic device, the sale of the digital property is subject to New Jersey sales tax because the customer’s billing address is in New Jersey. Digital property is also subject to the compensating use tax.