Are free digital downloads considered service or goods?

Tennessee — Digital products are taxable in Tennessee. This includes digital audio visual works, audio works and books. Texas — Digital products are taxable in Texas, as long as the item would also be taxable if sold in physical format.

This means books, movies, audiobooks, etc. Utah — Digital products are taxable in Utah. Vermont — Digital products are taxable in Vermont, whether transferred electronically for permanent or temporary use.

Virginia — Digital products are tax exempt in Virginia. This includes digital products delivered electronically, such as software, downloaded music, ringtones and reading materials are tax exempt in Virginia.

Washington — Digital products are taxable in Washington. Sales or use tax apply to all digital products, regardless of how they are accessed downloaded, streamed, subscription service, networking, etc. This includes downloaded digital goods like music and movies, streamed and accessed digital goods, and digital automated services.

For purposes of the sales and use tax, D. West Virginia — Digital products are tax exempt in West Virginia. This includes audio works, audio visual works and books.

Wisconsin — Digital goods are taxable in Wisconsin. This includes audio works, audiovisual works, books and codes used to purchase works digital or physical by digital means. Wyoming — Digital products are taxable in Wyoming. This includes digital audio works, audio visual works and books.

If you need to charge sales tax on digital products in your online store, the TaxJar API takes all of these state laws into account and makes you job simple. Automate sales tax calculations, reporting and filing today to save time and reduce errors. Digital Products, Defined For the purposes of this blog post, we are going to focus on focus on digital products such as movies, books and eBooks, music, ringtones, photographs and magazine and newspaper subscriptions.

Downloads vs. Physical Property v. Digital Downloads Another distinction we saw was the difference in taxability between software, music, movies etc. Source Arizona — Digital products are taxable in Arizona. Source Arkansas — As of January 1, , digital products are taxable in Arkansas. Source California — Digital products are tax exempt in California. Source Florida — Digital products are tax exempt in Florida. Source Georgia — Digital products are tax exempt in Georgia.

Source Hawaii — Digital products are taxable in Hawaii. Source Idaho — Digital products in Idaho are taxable when the purchaser has the permanent right to use the product. Source Kansas — Electronically downloaded or digitized products are information is tax exempt in Kansas.

Since a sale of digital products involved no tangible property and no specific service was delivered, the sale was a non-event according to sales tax laws on the books. The eventual adaptation of sales tax law from goods to services provides a framework to view the shift from goods and services to digital products. In order to embrace the taxation of digital products, the states must define digital products and eventually make some basic decisions on taxability.

The digital revolution arrived nonetheless and states have been busy figuring out how they can increase revenues by exploring taxation of the marketplace for digital products. Although it has only been a short time since the Act was enacted, states currently taxing digital goods have not stepped outside the boundaries of existing sales tax rates or sought to impose taxes separate from existing sales taxes.

The impact of the federal law may or may not be significant and on a practical level, it remains to be seen whether this federal law will have any real bearing on the taxation of digital goods. Digital products are broadly construed in many formats. Our focus is on digital products known colloquially as digital goods:. This rough definition of digital goods gets stretched and contracted by some states, but it is important to remind you that this whitepaper does not address data processing, computer software, or online cloud services, among other related products and services often lumped together in official and unofficial communications.

We also do not explore legal strategies to aggressively avoid taxation of digital products, such as analysis of true object or inapplicability of tangible property rules.

Finally, remember that whether a state does a good job defining digital goods has little or no bearing on whether digital goods are taxable in that state. Many states make some allusion to digital goods in their body of legislative and administrative law.

In addition, the Streamlined Sales Tax Governing Board has made the identifying and defining of digital products a cornerstone of their effort. The SST is a voluntary organization of 22 states with the goal of encouraging uniformity among states with regard to sales tax compliance obligations.

The SST is not designed to dictate taxability or rate structure among the states. Instead, it focuses on centralization of reporting, uniformity of definitions and other efficiency related initiatives. One of the areas where membership in the SST requires legislative reform at a state level is the identification of objects for sales tax purposes.

The body of SST model legislation spends a great deal of ink devoted to the definition of digital goods. Connecticut defines digital goods within its section of telecommunication services law. Note the law here specifically omits digital goods from the category of telecommunications services, but the definition is helpful.

Georgia defines digital goods within its section of telecommunication services law. Kansas defines digital goods within its section on telecommunication services law. Michigan defines digital goods within its section on telecommunication services law. Minnesota defines digital goods within its section on telecommunication services law.

Maine defines digital goods within its section on telecommunication services law. Ohio defines digital goods within its section on telecommunication services law. Texas defines digital goods as tangible property. West Virginia defines digital goods within its section on telecommunication services law. Alabama law does not specifically define digital goods for sales tax purposes. Arizona law does not specifically define digital goods for gross receipts tax purposes.

Colorado does not specifically define digital goods for sales tax purposes. District of Columbia does not specifically define digital goods for sales tax purposes. Florida does not specifically define digital goods for sales tax purposes. Maryland does not specifically define digital goods for sales tax purposes.

Clearly, some states dissect the issue to an even greater degree and there are many, many gray areas. For example, digital photographs are carved out in some states. Other questions such as whether a digital good is transferred permanently, whether a digital good is subject to a subscription contract or whether a digital good is delivered with the aid of a physical storage device can all impact specific taxability of specific digital products in specific states. It is strongly recommended each vendor consult with a tax professional to determine the precise treatment required for your products in the states where you sell.

While this whitepaper is only meant as a guide, this information will hopefully trigger some good conversation and deeper understanding. Once again, there are three rough categories to help understand the varying treatments given by the states in taxing or not taxing digital goods:. Indiana law states "A person is a retail merchant making a retail transaction when the person: 1 electronically transfers specified digital products to an end user; and 2 grants the right of permanent use of the specified digital products to the end user that is not conditioned upon continued payment by the purchaser.

North Carolina law applies sales taxes to any product delivered electronically that would be taxable if delivered in tangible form, specifically including digital products as defined. Alabama : When it comes to digital photographs specifically, Alabama regulations identify the digital files as tangible property and thus taxable.

Based on these regulations and the broadly interpreted Alabama definition of tangible personal property, digital goods are generally considered taxable in Alabama.

Arizona broadly defines tangible personal property. Digital goods are considered included in that definition by Arizona DOR and are taxable in Arizona as tangible personal property.

Colorado does not define digital goods nor affirmatively tax them. Note though, Colorado does consider electronic versions of otherwise taxable newspapers or magazines to be tangible personal property and taxable.

Idaho subjects digital goods to sales tax. Note digital audio-visual works are excluded from the definition of digital property. Missouri DOR stated in a Letter Ruling that digital content associated with taxable software is taxable, while digital content associated with non-taxable software is exempt from sales tax.

The place of taxation will be the place where the service is performed. This table shows examples of typical supplies of business-to-consumer education or examination services, and the place where the supply is to be taxed.

The platform operator is supplying the consumer if the platform operator identified you as the seller but, sets the general terms and conditions, authorises payment or handles delivery or download of the digital service. Because of these conditions the vast majority of digital platforms will be liable to account for the VAT on the third party sales.

This page has been updated because the Brexit transition period has ended. Guidance about the place of supply rules and VAT accounting options for businesses established in the UK and businesses established outside the EU has been updated. Check what you need to do. To help us improve GOV. It will take only 2 minutes to fill in.

Cookies on GOV. UK We use some essential cookies to make this website work. Accept additional cookies Reject additional cookies View cookies. Hide this message. Home VAT.

Guidance VAT rules for supplies of digital services to consumers. Print this page. RAS is used in this state when the consumer first accesses the prewritten software in this state. The sales of digital products, digital codes, and RAS are sourced the same as other sales according to the following hierarchy:.

Putting a digital product on a server in Washington does not establish nexus. If an out-of-state person owns, rents, or leases server equipment, then ownership interest of the server equipment may be considered as a factor in determining nexus.

Exclusions, including telecommunications and internet access, are not considered digital products even though they are transferred electronically.

These activities and items are excluded from the definition of digital products. Their tax treatment is not changed by these laws. See the Definition of Terms section above for more examples of activities that are not considered digital goods and digital automated services. The purchaser must provide a reseller permit or an exemption certificate.

There is a use tax exemption for the recipient of digital products obtained free of charge. There is also a sales and use tax exemption for the person purchasing digital products, digital codes, or remote access software to give it away for free. The purchaser must provide an exemption certificate to the seller. If a business purchases a digital good only digital goods, NOT digital automated services or remote access software for business purposes, then the purchase is exempt from sales tax.

Digital codes can be purchased exempt from sales tax as well, as long as only digital goods are obtained through the use of the code and the digital goods will be used solely for business purposes. Businesses purchasing digital products that may be used concurrently within and outside Washington are entitled to the multiple points of use MPU sales tax exemption. The buyer must provide the exemption certificate and pay use tax as explained below. The MPU exemption does not apply to purchases for personal use.

There is an exemption for the purchase of prewritten software by the person who will provide the software remotely. Satellite providers have a federal exemption only from the local portion of the sales and use tax when they sell programming on a pay-per-program basis. Satellite providers do not have a state sales and use tax exemption because they do not pay franchise fees and therefore their sales are subject to the state portion of the sales tax rate.

RCW If you have tax questions about digital products, e-mail us or call Special Notice - Digital Products pdf.