Sales, Use and International Tax Activity Update - June 2009

South Dakota Bulletin Demystifies Internet Related Services

The state Department of Revenue and Regulation has issued a bulletin explaining how sales and use tax applies to Internet access and Internet related services. The sale of internet access and internet related services are subject to the state sales tax plus applicable municipal sales tax. Examples of internet related services subject to sales tax are:

• Internet access fees
• Internet e-mail services
• Arranging for live chat or conferencing sessions directly on the internet, i.e., webinar session
• Technical assistance and support (either in person, over the phone, electronically, or via e-mail)
• Web hosting and/or domain name registration
• Web site development (without placement)
• Web site maintenance (without placement)
• Real-time streaming video and/or audio

Internet related services not subject to sales tax include:

• Web site development that includes placement on the Internet by the agency
• Web site maintenance that includes placement on the Internet by the agency
• Fees charged by a website owner to place ads on their website

Internet access is subject to sales and applicable municipal sales tax determined by the customer’s place of primary use. The customer’s place of primary use is the residential street address or the primary business street address of the customer.

Preparing a web page, home page, or billboard and placing it on the internet is providing an exempt advertising service. Charges for preparing and placing updates to a homepage or webpage are also exempt advertising services. Both preparing and placing must be done by the same agency in order for the service to be exempt. Preparing or developing a website is subject to sales tax where the product is delivered. Web hosting services are subject to state sales tax, plus municipal sales tax based on the customer’s location. A web host may just provide server space or they may also place the web page, provide necessary domain name registration or other services. Fees charged to register domain names or fees to renew a domain name registration are subject to sales tax based on the customer’s location. However, the sale of a domain name to someone else is the sale of an intangible and is not subject to sales tax.

Charges for support services or help lines are subject to state and applicable municipal sales or use tax based on the customer’s location. All charges to the customer are taxable.

The sale of goods and services via the internet is subject to state and applicable municipal sales tax when delivered (physically or electronically) to locations in South Dakota. Any delivery charges or handling charges are included in the amount subject to sales tax. The consumer will owe use tax if purchased from an unlicensed vendor. Products are subject to sales tax based on the location delivered. If the delivery location is unknown, the sales tax applies based on the customer’s location or the customer’s address that is on file. When no delivery address or customer address is known, the sale of product transferred electronically is subject to sales tax at the location the product was first available for transmission by the seller.

(Tax Facts #200, South Dakota Department of Revenue and Regulation, Issued May 2009)

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