A new report by the New Jersey Division of Taxation may indicate that the Murphy administration is seeking ways to expand taxes on digital goods and services. The report analyzes areas of the digital economy that could be brought into the realm of the tax system. It identifies multiple candidates that are currently exempt from taxation but which merit “review.”

As outlined in the report, legislators have so far made relatively little inroads into the digital economy as far as taxation. New Jersey took what the report calls a “leading-edge” step in 2011 that made “specified digital products,” such as electronically transferred audio, visual, or book materials, subject to the sales tax.

The authors set their sights on broad swaths of the digital economy as potential sources of tax revenue. In particular, they identify the following areas:

  • Software as a Service (SaaS). New Jersey currently taxes prewritten software but does not tax on-demand software licensed on a subscription basis from a centrally hosted platform, such as Microsoft Office and Adobe Creative Suite. The report suggests that New Jersey would do well to follow Maryland’s example in exacting taxes from such services.
  • Cloud services. Services such as iCloud and OneDrive.
  • Telecommunications. Internet service providers currently have special dispensation under the Internet Tax Freedom Act not shared by their phone service counterparts that exempts them from taxation.
  • Internet and Data Services. Sites such as YouTube that enable consumers to access specific content on the web.