My Rat Race

Tax season is coming up again. I have been in the business of selling these services when my business started in 1997: Domain Names, Web Hosting, Web Design, Web Development and SEO (Search Engine Optimization). I started with a company outside of the US where tax laws were somewhat easier to get away with. And I had a cheap accounting firm taking all of my tax headaches away. Now I am in the US, accountants here are a bit expensive and paid by the hour so I need to do more research and find out the answers the hard way.

If you have a business similar to mine, you might be asking these questions:

• Are Domain Names taxed?
• Is Web Hosting Taxed?
• Is Web Design or Web Development Taxed?
• Is SEO, SEM, PPC or Email Marketing Taxed?

After doing my research this is what I found out.

Are Domain Names Taxed?

Domain Names are a service. Although you do say you “own a domain,” the moment you do not pay your annual domain name registration fee and you let it expire, you no longer own your domain name. Your domain is not a tangible object you can hold. Your domain is a service given to you by your domain name registrar and once you stop paying, you lose the domain. Since my business is in California, I took into account any other State tax and still found nothing. Two links I found that may guide you more:

• Tips On Proper Reporting of Your Domain Name Sales on U.S. Personal Tax Returns
  Domain Name Journal is one of the major resources of information for domain name owners.
  http://www.dnjournal.com/columns/tax_tips.htm
• Domain Names, Accountants & the IRS
  Moniker.com/Monte Cahn - Transcript of an interview of Evan Brody from Brody & Associates from the podcast Domain Masters on WebmasterRadio.fm. Monte Cahn is an authority in domaining. http://www.moniker.com/domain-masters/ep-2005-05-18/page-1.jsp

Please also note that domain names can be used in some other way other than as simply serving as a web address. Some people can buy domains at a certain value, treat it like some real estate property, make the price increase and sell it. The main intention in buying the domain was to keep it and have the price increase as more people might be interested in the domain name. Another thing would be people that buy domains with no other reason for buying it except to place paid ads or pay per click ads on the domain. These services may not be treated in the same way and might be subject to tax. So it will still all depend on how you treat your domain name.

Is Web Hosting Taxed?

First of all, with the lack of any resource talking about it and just using common sense, web hosting is a service. Nothing tangible. Thus this should not be subject to sales tax. But just to be sure, I kept searching online and found a good conversation on an online forum of WebHostingTalk. http://www.webhostingtalk.com/archive/index.php/t-121168.html

In the thread, this question was asked someone named croutons on 03/13/2003:

Hello,

I would really appreciate if anyone can help me.

Is web hosting taxable in the state of California?

As the thread progressed, there were several answers and the important ones was by maxwello:

Web hosting is not taxable in the state of California. It is a service, and under California tax laws, services are exempt from sales tax.

See http://www.boe.ca.gov/sutax/faqpurch.htm#one and http://www.boe.ca.gov/pdf/pub61.pdf for more info.

And further clarified by Hostkookster:

SERVICES - The sale of services where no tangible personal property is transferred or where the transfer of property is incidental, are not subject to sales and use taxes. Persons providing services are consumers of property used in their business activities. However, persons who engage in service operations are retailers of any supplies or other tangible personal property sold to their customers or clients, and tax applies to gross receipts from such sales. Certain services, however, are defined as sales of tangible personal property. For example, the fabrication of tangible personal property for a consumer is defined as a “sale” even when the consumer provides all the tangible personal property used to fabricate the end product.

Is Web Design or Web Development Taxed?

I didn’t even bother to look into this. Just by answering both questions above, I already know this is a service. But word of caution. If you are selling any software package that is a website maker or some kind of licensed CMS (Content Management Software) this might be a different issue since you are selling a software package with some license. Now since we are at this topic… If you give a free opensource CMS, like Drupal or Wordpress, these are really free and if you charge for the installation/configuration/setup, then these are all setup fees and are services. Thus all not subject to sales tax.

Is SEO, SEM, PPC or Email Marketing Taxed?

Again after answering all the questions above, you should know the answer by now. These marketing services are all services. Nothing tangible. But similarly to the web design and development, if you sold some software, the issue might be different. but for the service alone, no sales tax for SEO (Search Engine Optimization), SEM (Search Engine Marketing), PPC (Pay-Per-Click Advertising) and Email Marketing.