Every once a while you get a glimpse of the future in a relatively obscure tax pronouncement. This New York Counsel Advisory Opinion is a good example. What is the coolest thing in the Star Trek version of the future ?
Right. What I mean is the second coolest thing, the thing which does not involve Counsellor Troi and the holodeck. That would be the replicator
I’ll never figure out why somebody as smart as Jean Luc Picard just uses the thing to make tea, when he could be getting a chocolate frappe, some India Pale Ale or if he needs a boost some Mountain Dew. When I am in front of my first replicator it will be “Mountain Dew, slightly flat, cool”.
According the that nearly infallible source wikipedia
A replicator can create any inanimate matter, as long as the desired molecular structure is on file,
When we all have home replicators or even better portable ones, that molecular structure file is going to be the key. With replicator technology available, there will be little distinction between tangible personal property and intellectual property. The way it might work is that the typical replicator will have patterns stored for common things, but the owners of something really special like Bass Ale will figure out a way to encrypt the structure so that they can charge you on a per unit basis. Here is the really important question. What happens with the sales tax?
At least in New York, as the law stands now, it appears that vendors who provide molecular structure files for home replicators will not be required to collect sales tax. Of course this is a bit of an argument by analogy, but I think it is fairly good. Here is the opinion:
ADVISORY OPINION PETITION NO. S110722A
The Department of Taxation and Finance received a Petition for an Advisory Opinion from *****. Petitioner asks whether its receipts from the sale of pattern or project downloads (eProjects) are subject to tax.
We conclude that, since Petitioner’s pattern downloads and eProjects are not sold in tangible form and are not sold with other tangible items, such as craft materials, the sale of these items is not subject to sales or use tax pursuant to sections 1105(a) or 1110(a) of the Tax Law.
Facts
Petitioner is a company based in another state that publishes various arts and craft related books, magazines, DVDs, and patterns in both physical and downloadable versions. Petitioner sells downloads of patterns, eProjects, E-Books, periodicals, and videos directly to consumers. Access to the pattern downloads and eProjects is through the use of an online check-out tool that allows the customer to select and pay for the electronic pattern or project which the customer would like to download. Petitioner described an electronic pattern and an eProject as follows: An electronic pattern consists of step-by-step instructions that are downloadable to teach someone how to make something, such as how to knit a hat or crochet a scarf. An eProject is a collection of multiple electronic patterns combined together into one download, such as a certain number of jewelry projects.
Analysis
The Tax Law imposes sales and use tax on tangible personal property, including prewritten software. See Tax Law §1105(a). Petitioner’s pattern downloads and eProjects are non-tangible electronic or digital files that provide patterns and instructions for purchasers to make their own craft projects. The downloads do not appear to provide any access to prewritten computer software. The downloaded patterns and eProjects are also not sold in conjunction with tangible personal property (such as materials to make the craft projects). To the extent that this is the case, they would not constitute tangible personal property and their sale or use would not be subject to sales or use tax. See TSB-A-07(14) S, TSB-A-01(15)
There is doubt as to whether replicator technology is actually possible, but 3-D printing does work
and it raises the same issues.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com Oct 27th, 2012
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