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Sales Tax for Digital Products: Laws, Definitions, Downloads

sales tax digital products

The world around us is increasingly turning digital, and this includes many products and services that companies are providing to clients across the digital landscape. If you’re such an entity and are utilizing the digital space more and more often for your products and service solutions, you may be asking an important question on a regular basis: Should I be charging sales tax for these products and services?

At SalesTaxSolutions.US, we’re here to help with every part of your business’s sales tax and related tax needs, from business registration solutions to filing, compliance reviews, tax audits and many other areas. We’re also happy to assist with concepts like charging sales tax on digital products or services — should you be doing it? This two-part blog series will investigate several important areas to consider.

Laws Are in Constant Flux

First and foremost, before we proceed any further here, it’s vital for our readers to understand that laws are in constant flux. Just because a law or regulation was in place at the time of this writing doesn’t mean it will still be in effect by the time you’re reading it. We advise companies to keep a watchful eye on sales tax news and updates so they can make changes to their practices as needed.

This is because the digital world is still evolving rapidly, and with that comes new legal interpretations of existing laws as they apply to this brave new world. In addition, like with many other areas, laws will vary heavily here between states. So, with that said, let’s begin taking a look at whether or not your company should be charging sales tax on digital products or services.

What Is Considered a Digital Product or Service?

This is a great place to start, since it’s not always immediately clear what actually constitutes a digital product or service. In general, though, we can say that digital products and services are those which are delivered electronically. This might include the following:

– Songs, books, and other forms of media which are downloaded from the internet

– Software as a service (SaaS) offerings

– Online courses and other educational materials

– Memberships to online content, such as news sites or video streaming services

As you can see, there’s a lot of gray area here. What about a song that’s purchased on CD and then ripped to a computer? Is that considered a digital product? And what about an online course?

Whether the Client Downloaded It

In many states, the major differentiator between digital products and non-products is whether the client downloaded the product, or whether they’re accessing it online but did not download it themselves. For example, in some states, if you buy a movie and have it transferred to your digital possession, it’s taxable; but on the flip side, if you only rent that movie for a limited period of time, it will not be taxable.

In part two of our series, we’ll look at some other elements to consider when determining whether to charge sales tax for digital products and services. For more on this, or to learn about any of our online sales tax compliance, registration or other services, speak to the team at SalesTaxSolutions.US today.


Christopher Stout

Christopher Stout has 25 years of experience as a sales tax accountant, working across a wide variety of industries and sales platforms. He's personally prepared or supervised the preparation of over 60,000 sales and use tax returns in his career.

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