According to a ruling from the State of Washington this week “Internet domain name registration services are generally subject to retail sales or use tax.
This article only addresses the initial sale of a domain name by a registrar.
The Domain Name System helps users find their way around the Internet.
Every computer on the Internet has a unique address, called an Internet Protocol (IP) address. Website owners then buy an easy-to-remember domain name. For example, instead of typing in an IP address (such as 220.127.116.11), a user would type in a domain name (icann.org) to access a website.
Third-party domain name registrars sell domain names. Registrars assign a unique domain name from a domain name registry and ensure they lead to the right IP address (Det. No. 11-0081, 32 WTD 46 (2013)).
Under the law, “sale at retail” and “retail sale” include sales of digital automated services to consumers (RCW 82.04.050(8)(a)).
“Digital automated services” means any service transferred electronically, such as over the Internet, using one or more software applications (RCW 82.04.192(3)(a), (8)).
Since domain name registration services meet these definitions, they are generally subject to retail sales or use tax.””
Rightside for one is headquartered in Washington State ( Kirkland) and owns two domain name registrars Enom.com and Name.com.
The state of Washington has a statewide sales tax of 6.5% but allows additional add on’s to the sales tax which can thereby vary by county or city. According to the taxfoundation.org, the average total sale tax in the State of Washington is 8.89% the 5th highest in the United States.
Of course with new gTLD registrations priced as high as $60,000 per domain, we are now talking about a substantial amount of money.
We will reach out to Rightside and see what they have to say about this ruling.