Should I charge my customers sales tax on digital goods I sell through my WooCommerce store? It’s a common question for online sellers, and it’s important to know the answer in order to get sales tax right.
However, the right answer for you can vary quite a bit, depending on the state and the product. As with anything related to sales tax, every state has its own set of definitions and rules and it’s ultimately up to you to make sure you are within compliance. But here are some guidelines to sales tax on digital goods to help get you on the right track.
For the purposes of this blog post, we are talking about sales tax on products that are delivered electronically such as digital audio files (music, ringtones and podcasts), visual files such as photographs, video files such as television shows and movies and digital publications such digital books or newspapers. This may also include digital codes that allow access to digital goods.
Software, data processing or cloud services are often treated differently in sales tax terms, so in this post, we are leaving those out of the equation.
The Streamlined Sales and Use Tax Agreement (SSUTA or SST) is an agreement among 24 states that aims to simplify state sales tax administration. The SST created definitions for many commonly taxed or exempt products, including digital goods. A requirement to be a member of the SST is to publicly affirm how the state treats all defined products. That doesn’t mean that all SST states have adopted those definitions, or that the taxation of digital goods is uniform among SST states. It means that it is easy to know how SST states tax digital goods.
However, it is much more difficult to know in non-SST states, which may have different definitions for digital goods or no definitions at all.
The SST has defined digital goods for its member states as:
- Digital audio-visual works, which include products such as videos, movies or television series that are delivered electronically.
- Digital audio works, which include music, podcasts and ringtones that are delivered electronically.
- Digital books, which are books that are delivered electronically.
Because sales tax laws were developed with tangible goods in mind, digital products can be problematic in terms of sales tax definition and rules.
- While some states define digital goods and clearly state their sales tax status, others don’t.
- Keep in mind, however, that digital goods may still be taxable in a state even if they are not explicitly defined as such. Many states treat digital goods the same way they do similar “tangible personal property” without specifically announcing that the rules also apply to digital goods.
- On the other hand, some states treat tangible and digital versions of the same product differently.
- Digital products that are purchased for permanent use may be treated differently than products that are merely accessed for nonpermanent use. For example, a movie that is downloaded for permanent use may be taxed, while a movie that is rented online for a limited amount of time may not be taxable.
Below are general guidelines on how each state treats digital goods. Again, it’s imperative to verify the details for your particular situation.
Digital goods are taxable in Alabama. The state does not specifically define digital goods for sales tax purposes, but they are treated as taxable tangible property.
Digital goods are taxable in Arizona. Although digital goods are not specifically defined for sales tax purposes, they are considered tangible personal property and are subject to gross receipts tax (Arizona’s sales tax equivalent).
Digital goods are exempt from sales tax in Arkansas, whether they are purchased for permanent or nonpermanent use.
Digital goods are exempt from sales tax in California when they are transmitted electronically. However, if “you provide your customer with a printed copy of the electronically transferred information or a backup data copy on a physical storage medium such as a CD-ROM, your entire sale is usually taxable.”
Digital goods are taxable in Colorado, as they meet the state’s definition of taxable “corporeal personal property.” Electronic versions of newspapers that are classified as “legal publications” are exempt from tax, since the printed versions of those types of newspapers are also exempt from tax.
Digital goods are taxable in Connecticut at a rate of 1%, “as long as no tangible personal property is provided in the transaction.” If tangible personal property is provided as part of the sale, the regular sales tax rate applies.
Digital goods are not taxable in Florida.
Digital goods are exempt from sales tax in Georgia. Computer software “sold in intangible form” has been explicitly defined as non-taxable and this applies to other goods delivered electronically.
Digital goods are subject to Hawaii’s general excise tax, although the state has not specifically defined the status of digital products.
Digital goods are subject to sales tax in Idaho if the purchase includes permanent right to use. If the digital product is merely accessed for lease or rental (including digital subscriptions), the transaction is not taxable.
Digital goods that are “downloaded electronically” are exempt from sales tax in Illinois.
Digital goods that are sold “with rights for permanent use” are taxable in Indiana. However, digital goods that are sold “with rights of use less than permanent use” are exempt.
Goods that are “delivered to the purchaser electronically or digitally” are exempt from sales tax in Iowa.
Digital goods are exempt from sales tax in Kansas. However, “when the same digital product is sold and delivered on a tangible medium such as a CD, DVD, or paper, the transaction is taxable.”
Digital goods that are “stored, used, or consumed in the state of Kentucky” are subject to sales tax.
The “sale or use” of digital goods is taxable in Louisiana.
Digital goods “sent electronically” are taxable in Maine.
“Digital products delivered electronically” are exempt from sales tax in Massachusetts.
Digital goods are exempt from sales tax in Michigan.
Digital goods are classified as tangible personal property and are taxable in Minnesota. However, textbooks and instructional materials in both tangible and digital form are exempt.
Digital goods are taxable in Mississippi, whether the sale includes “right of permanent or less than permanent use.”
Digital goods are not subject to sales tax in Missouri.
Digital goods, including the sales of digital codes that allow access to digital goods, are taxable in Nebraska “when delivered electronically if the products are taxable when delivered on tangible storage media.”
Digital goods “delivered electronically” are exempt from sales tax in Nevada.
Digital goods are taxable in New Jersey. They are defined as “electronically transferred digital audio-visual work, digital audio work, or digital book.” The sale of a digital code that gives the purchaser the right to obtain a digital product is also taxable.
Digital goods are subject to New Mexico’s gross receipts tax (the state’s equivalent to sales tax).
Digital goods are exempt from sales tax in New York. Digital books must meet specific requirements in order to qualify for exempt status.
Digital goods that are “delivered or accessed electronically” are taxable in North Carolina.
Digital goods, defined as digital audio-visual works, digital audio works and ebooks, are taxable in North Dakota.
Some digital goods, specified as “audiovisual products (such as movies), audio products (such as songs), and books delivered electronically” are taxable in Ohio.
Digital goods, defined as “products delivered electronically, including but not limited to, software, music video, reading materials or ring tones,” are exempt from sales tax in Oklahoma.
Digital goods, defined as “any product transferred electronically to a customer by download, streaming, or through other electronic means,” are taxable in Pennsylvania. Exemptions that apply to tangible property also apply to digital counterparts, including textbooks purchased through or from accredited schools, newspaper and magazine subscriptions and the resale of digital products.
Digital goods, “such as digital audio visual works, digital audio works, digital books, movies, music downloads, and ringtones which are delivered electronically,” are exempt from sales tax in Rhode Island.
Digital goods are exempt from sales tax in South Carolina. Products delivered electronically are not considered tangible personal property.
Digital goods, including digital codes used to access products, are subject to sales tax in South Dakota, whether the purchaser has temporary or permanent use.
Some digital goods are taxable in Tennessee, including digital audio-visual works, digital audio works and digital books. Excluded are video or audio greeting cards sent by email, newspapers, magazines, periodicals, blogs, video or electronic games and “individual digital photographs that do not impart an impression of motion when viewed successively.”
Digital goods are taxable in Texas: “The sale or use of a taxable item in electronic form instead of on physical media does not alter the item’s tax status.”
Digital goods, defined as “audio, video and data that are not delivered on physical storage media,” are taxable in Utah.
“Specified digital products transferred electronically” are taxable in Vermont whether purchased for permanent or nonpermanent use.
Digital goods, defined as “digital products that are delivered electronically, such as software, downloaded music, ring tones, and reading materials,” are exempt from sales tax in Virginia.
Digital goods are taxable in Washington, whether accessed for “permanent or nonpermanent right of use.”
Digital goods are exempt from tax in West Virginia, whether purchased for permanent or nonpermanent use.
Digital goods, defined as “any product that is transferred electronically to the purchaser,” are taxable in Wisconsin, although newspapers delivered in digital format are exempt from sales tax.
Digital goods are taxable in Wyoming, including digital audio works, audio visual works and books, when purchased for permanent or nonpermanent use.
Keeping track of the taxability of digital goods in every single state can be a time-consuming chore. Automation, such as Avalara’s AvaTax for WooCommerce, can provide a solution. AvaTax integrates seamlessly into WooCommerce and automatically applies the correct sales tax rate to every transaction in every state. Avalara’s powerful database is constantly updated for results that are guaranteed 100% accurate. And special plans for small businesses make it a very affordable solution.
Want more? Click here to download your own copy of the WooCommerce User’s Definitive Guide to sales and use tax.