How do digital services taxes work?
Digital services taxes (DSTs) are taxes that are applied to companies that provide digital services, such as streaming services, social media platforms, digital gaming, and online advertising. The taxes are usually imposed on a provider’s revenue from the services rather than the consumer’s purchase. In the United States, digital services taxes are imposed on a state-by-state basis. In North Carolina, the first digital services tax was passed in 2019, and it applies to companies that make over $100 million in revenue from digital services in the state. The North Carolina DST is calculated based on the digital services revenue in the state, multiplied by a rate of 2.5%. The tax rate for digital services is slightly higher than the sales and use tax rates that are applied to most goods and services. Companies must provide their digital services revenue when filing their income tax returns and may need to pay the DST on a quarterly basis. The revenues from the digital services taxes are used to fund various state programs, such as education, infrastructure, and health care. The taxes have raised billions of dollars for the state, which is an important source of revenue to fund the North Carolina government. While some states have implemented digital services taxes, the federal government has not yet implemented a tax at a national level. This means that digital services taxes vary from state to state, which can create confusion for digital providers. Nonetheless, digital services taxes are an important source of revenue for states, and North Carolina has been successful in its implementation of digital services taxes.
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