We believe that sales and use tax is due when you are outside the U.S. Territories and when you sell from one state to another. In our view, this applies to both digital goods and services (e.g. digital media, downloadable music, streaming media, fonts and graphics) and traditionally defined services or goods (e.g. physical goods or services). The law is similar in Minnesota. Digital products are taxable in Minnesota, but textbooks are not. According to their logic, digital books would be taxable, but digital textbooks are exempt from tax. The sale of digital products, digital codes and RAS is related to other sales according to the following hierarchy: Remember that in this article we refer to digital goods such as movies, books and e-books, music, ringtones, photos and subscriptions to newspapers and magazines. For the purposes of this blog post, we focus on digital products such as movies, books and e-books, music, ringtones, photos, and magazine and newspaper subscriptions. Following a U.S.

Supreme Court decision in June 2018, many states introduced new rules requiring out-of-state sellers to collect and pay sales tax even without a physical presence in that state. In other states, sales tax laws do not define digital products and do not address their taxableness. The guidelines are sometimes found in decisions of the Department of Finance, in which tax authorities answer questions from certain taxpayers. “In general, postal decisions apply at all levels when the facts are the same,” said Scott Peterson, vice president[2] of government relations at Avalara. “A taxpayer`s decision can apply to any taxpayer with the same facts. A judgment by letter is the official opinion of a state on how a law is applied to a set of facts. Although it is not a law, a letter of judgment binds the state, just as a law binds the state. Ohio – Some digital products are taxable in Ohio.

These include digital audiovisual works, digital audio works (including music and ringtones) and e-books, and it does not matter whether they are sold for permanent or “less than permanent” use. (Source) Laws regarding digital products are literally constantly changing or reinterpreting. At TaxJar, we take crowdsourcing as much VAT information as possible seriously. So, if you have experience with VAT on the digital products you want us to know, we`d love to hear from them in the comments accompanying this post. (If you`re selling digital products and these big warnings have worried you, don`t sweat. The TaxJar API does all this for you in your online store. We`ll come back to that later.) We also found unequal taxation of cloud products and services; Nearly half of the states that tax SaaS (Software as a Service) – without necessarily defining what SaaS is. They are all eager to open your business online and are ready to sell digital goods to your customers in the United States. If digital taxes weren`t so extremely complex! The U.S. sales tax follows one of the most complicated systems in the world, but don`t worry: you don`t need to know the details of the whole thing, a working knowledge of the most important concepts will do.

We have prepared a simple primer to help you through the maze. Data processing services are mainly automated services provided to a company or other organization when the main purpose of the service is the systematic execution of operations by the service provider on data provided in whole or in part by the customer in order to extract the necessary information in an appropriate form or to convert the data into usable information. Data processing services include cheque processing, image processing, forms processing, survey processing, payroll, claims processing and similar activities. Fees for data processing services are subject to the service and other activity of the B&O tax as a professional service (VAT is not applicable). If you sell digital goods to customers in the EU, you need to calculate VAT based on your customers` location. Nebraska – Digital products are taxable in Nebraska. This includes the sale of digital music, movies, TV shows and e-books. Digital codes sold to access digital products are also taxable in Nebraska.

(Source) Now that this big warning is over, let`s talk about some of the most important ways states treat digital products when it comes to sales tax. So, which items are considered digital products? With all the recent technological advances, this is not an easy question to answer. South Dakota – Digital goods are taxable in South Dakota, whether transferred electronically, for temporary or permanent use. (Source) Oklahoma – Digital products are tax-exempt in Oklahoma. These include digital music, movies, ringtones, and books. (Source) A digital good or digital code is used in this state when the consumer accesses, downloads, owns, stores, opens, manipulates or uses this state for the first time. A DAS is used in this state when the consumer uses, appreciates, or receives the service for the first time in this state. RAS is used in this state when the consumer first accesses the predefined software in this state. The alternative to this seems to be that if a seller doesn`t levy tax, the buyer owes a USE tax that complements the sales tax, which would absorb the nonsense if a seller doesn`t register, collect, and pay taxes to the respective U.S.

state. We took digital games and photos because some states tax them differently than other digital goods. The laws also apply to remote access software (“RAS”), which is also subject to sales tax. New York – Digital products are tax-exempt in New York. This includes electronically transmitted products such as music, ringtones, movies and books. (Source) Other forms of assistance can be found here and here. It stipulates that digital goods are taxed under their existing tax code by defining material personal property very broadly and sometimes specifying that the “equivalent” of the tangible object is identical to the object itself for the purposes of tax legislation. Some States even define equivalents as electronic versions of the article in question. Due to the very broad definition of material personal property, States do not have to specify in their tax legislation what a digital good is. The states that very broadly define material personal property to include digital assets are: Alabama, Arizona, New Mexico, Utah, and West Virginia. The states that define electronic versions as tangible property equivalents are: Indiana, Louisiana, Maine, and Texas.

There is an exemption for the sale of programs to pay by program by cable companies when cable companies are subject to a franchise fee on the gross proceeds of the sale. Satellite service providers have a federal exemption from the local portion of the sales and use tax only if they sell programs on a pay-per-program basis. Satellite providers do not have a state VAT exemption because they do not pay franchise fees and their sales are therefore subject to the state part of the VAT rate. RCW 82.04.192(11). Nevada – Digital products are exempt from tax in Nevada. This includes audiovisual works, whether sold permanently or for a limited time to the final consumer. (Source) The Simplified Sales and Use Tax Agreement (SSUTA) helps states manage a similar and more uniform sales and use tax. Their website offers a useful online tax matrix broken down by state.

If a company purchases a digital good (only digital goods, NOT automated digital services or remote access software) for commercial purposes, the purchase is exempt from VAT. Digital codes can also be purchased free of VAT as long as only the digital goods are obtained through the use of the code and the digital goods are used exclusively for commercial purposes. The seller continues to be subject to B&O retail sales tax on these sales. Also read our Special Opinion on VAT exemption for the purchase of standard financial information by qualified international investment fund companies. Arkansas – Effective January 1, 2018, digital products will be taxable in Arkansas. (Source) Because tax laws vary from state to state and become even more complicated when digital goods are sold, it`s important that any business owner selling digital products online gets clarity on what your state needs. The best ways to do this are to contact your state tax authority and discuss your specific sales transfer methods and products with an accountant who is familiar with online sales tax. “The mere storage of digital products, digital codes, computer software or master copies of software is excluded from the definition of das.

This exclusion includes providing storage space on a server for web hosting or backing up data or other information. Fees for digital storage, hosting and backup services are subject to the B&O tax according to the “Services and other activities” classification (VAT not applicable). Idaho – Digital products in Idaho are taxable if the buyer has the permanent right to use the product. If the buyer rents or rents the item, it is exempt from tax. If the right to use digital music, digital books, digital videos or digital games is linked to the buyer`s continuous payment, this is not a permanent right of use.