NOVI, Mich.—The increasing use of the internet for sales, service, and marketing is raising questions about when companies are required to pay sales and business taxes, said presenters at a Michigan Association of Certified Public Accountants conference Nov. 9 and 10.

Online transactions do not always involve physical products, and do not always require physical delivery, said Fred Nicely, tax counsel at the Council on State Taxation, in a Nov. 9 presentation on digital products and online transactions. Downloads of books, movies, and music and paid access to databases are “creating a lot of problems” for states, he said.

How to source digital goods when the seller does not track the purchaser's location or when the purchaser is using the product from multiple locations is a question that has not been answered, Nicely said. Another is whether a license to use software constitutes property, for states that base taxes on tangible personal property. “As you go further down the sourcing list, it gets murkier and murkier,” he said.