What to Know About Sales Tax and Cookies

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Despite the taxes some states levy on sales of prepared food items -- including cookies -- when it comes to the cookies you don’t eat, a handful of states determined these can have huge implications for your client’s sales tax obligations.

The other type of cookies are the colloquial expression for small snippets of software code stored on remote computers, phones and other internet connected devices. The code snippets are written and transmitted to users’ hard drives by publishers to make the publisher’s software products, services and apps work better on remote devices.

A good example of a cookie in action occurs when a website previously visited “recognizes” a user when the site is visited again, or an app is opened up. These bits of code can perform myriad functions, from logging internet activity to important authentication functions.

These days, it seems almost everyone owns a device with internet access, and chances are these devices have a cookie, several cookies or hundreds of them installed. However, rest assured the states aren’t looking to tax the transmission or storage of these cookies. Instead, some states are looking to base a claim of nexus on the transmission and storage of a cookie.

Nexus and Who Collects

These states aren’t taxing the transmission or storage of a cookie, but they are finding sales tax nexus is triggered once a cookie is transmitted to an in-state device. Allow a quick digression to level set: in the United States, sellers making retail sales to customers are not obligated to collect sales taxes on those sales, unless they have a physical presence in the state where the customer resides. This physical presence can take many forms, including employees, inventory or even referral advertising arrangements, but once established, the seller has triggered sales tax nexus. The state can compel that seller to collect and remit sales taxes on sales it makes to in-state customers.

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About Shane Ratigan

Shane Ratigan

Shane is a Senior Manager in the State and Local Tax Department at Clark Nuber, P.S. in Bellevue Washington.  Shane focuses on state and local indirect tax obligations for companies of all sizes operating across the United States and beyond. He collaborates with companies in developing scalable processes to support effective and dynamic indirect tax calculation and compliance, especially sales and use tax. 

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