State Tax Law and the New Economy: a KLJ Symposium Topic Covered by Adam Thimmesch

Blog Post | 107 KY. L. J. ONLINE | January 18, 2018

State Tax Law and the New Economy: a KLJ Symposium Topic Covered by Adam Thimmesch

Brittany Warford[1]


Small business owners, especially those who create intellectual property (hereinafter “IP”)—graphic designers for example—are increasingly bewildered by ever-changing state tax laws. Many are unsure whether they should charge sales tax on the digital products they create, the services they provide, or even where the line between the two should be drawn. It has become increasingly difficult to determine where services end and goods begin.

Most would agree that no one should be forced to charge a sales tax on their labor. A coffee shop may hire a cleaning crew to spruce up their space to make the atmosphere more appealing to customers, resulting in increased sales, and the crew would not be expected to charge a sales tax on their cleaning service. Yet, when a graphic designer spends 20 hours creating a logo for that same coffee shop, which he then sends to the owner via a digital medium, the situation is less clear.[2] The result for the cleaning crew and the graphic designer may be similar: both make the coffee shop look better and more inviting, resulting in customers staying longer and spending more money. The situations are distinguished by the simple fact that the graphic designer’s labor resulted in a digital good—a logo that can be placed all over the coffee shop and any merchandise the coffee shop wants to sell, just as a retailer would. Many states with outdated tax codes have struggled to keep up with the digital age, making it easy for those who buy and sell using digital mediums to escape sales tax.[3] Each state currently approaches this issue differently; as of now the Commonwealth of Kentucky does impose a sales tax on digital goods.[4]

Adam Thimmesch, professor of law at the University of Nebraska College of Law, addressed some of these state tax issues at the 2018 Kentucky Law Journal Symposium. Mr. Thimmesch is an expert in state tax compliance issues and has been published in numerous law journals throughout the country. He introduced innovative ideas to the forefront of the intersection between digital goods and state tax laws, noting that many state tax laws are not current with the new knowledge-based economy that most of the industrialized world operates within. This allows a lot of IP creators who work with digital goods to slip through tax loopholes. However, not everyone sees the current lack of uniform regulation as a loophole. Mr. Thimmesch also noted that many freelancers and business owners have been concerned that if they are forced to charge sales tax on their digital IP, the government will obtain a windfall through double-taxation because their labels, logos, or artwork are placed on retail merchandise which is then taxed again when sold to customers and consumers by the actual retailer.

Mr. Thimmesch expressed that because digital products are a major component of the 21st century economy, leaving these products completely untaxed would be a major oversight on behalf of state legislatures. After all, states often need to make up for shortcomings in revenue with sales tax, so it is smart for state legislatures to impose sales tax on digital products. However, it is still unknown what the consequences of such taxation will be on the new economy. One major argument is that it will stifle innovation—an argument that will always be present in debates about taxation.

Mr. Thimmesch had an opportunity to briefly discuss the pros and cons associated with imposing a sales tax on digital products at the symposium, but the Kentucky Law Journal will soon publish a new article by Mr. Thimmesch in which he will delve deeper into a more complex analysis of this issue. Whether states should impose such a tax or not has and will spark  much debate. Yet, as the world economy evolves, it is an issue that cannot be ignored. Mr. Thimmesch’s article will indubitably help elucidate the intersection between the complex world of state tax law and the digital age.


[1] J.D. Candidate, 2019, University of Kentucky College of Law.

[2] Fiscal Brief: To Tax or Not to Tax the New Economy: Digital Goods and Sales Taxes in New YorkCUNY Indep. Budget Off.

[3] Id.

[4] Sales & Use Tax, Ky. Dep’t Revenue, (last visited Jan. 13, 2019).