Is an e-book taxable? Can a downloaded song be "tangible personal property?" We’ll explain what you need to know about charging sales tax on digital goods.
Nowadays, consumers are more likely to download or stream a song than buy it on a tangible medium. However, states disagree on whether these digital goods are taxable.
Some states consider digital goods to be “tangible personal property” and thus taxable. Others do not.
Some states charge sales tax on digital products on how they are used. A streaming service might be non-taxable while the outright purchase of a TV show, even digitally, may be taxable.
When did you last buy a Blu-ray disc, a CD, or even a hard copy of a book? More and more products that used to be “tangible personal property” are now being consumed in digital form, which has created some confusion about how to charge sales tax on these goods.
Each state makes its own sales tax laws. This means that one state may classify e-books as taxable while another state might not. This article will explore sales tax on digital goods by state and everything you need to know about where they stand now.
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While every US state makes its own rules when taxing digital products, most define “digital goods” as items that are accessed electronically and stored permanently on a person’s computer or other digital device. Items commonly referred to as “digital goods” include:
Digital books or e-books
Music downloads
Movie downloads
Video game downloads
Cell phone ringtones
State laws regarding digital goods and services can be challenging to understand, as most sales tax laws were created before digital products existed. Almost all states with sales tax apply it to “tangible personal property” — but e-books, movies, and music are not things you can physically hold like a DVD.
Zamp Tip
Some states use existing guidelines to determine sales tax on the sale of digital products or tax them as tangible personal property because they can be seen or experienced. Others don’t charge sales tax on digital goods because they are intangible.
Sales Tax on Digital Goods Example
For example, many states tax digital products depending on how they are accessed. For example, a digital product might be taxed differently if it’s:
Accessed online but not stored on your computer (example: movies, TV shows, music and other audiovisuals that you stream online)
Accessed online and potentially downloaded, but that are no longer accessible if you stop paying a subscription fee
Accessed online but only kept temporarily, such as a movie rented for three days through a video-on-demand service like Amazon Prime Video
Let’s look at two opposing digital goods taxability examples:
California - Digital goods are generally not subject to sales tax
California has ruled that digital goods such as e-books, movies, and songs transmitted over the internet are taxable. This is as long as you don’t also receive a tangible item, like a print copy of an e-book, along with the purchase. Read more about digital goods taxability in California here.
New Jersey - Digital goods are taxable
New Jersey has ruled that digital goods like movies, songs and e-books are taxable. However, digital goods accessed electronically but not delivered to the buyer’s device, such as a movie watched on a streaming service, are non-taxable. Further, digital subscriptions to magazines or access to digital images are also non-taxable. Read more about digital goods taxability in New Jersey here.
As you can see, the states that have given consideration to the taxation of digital goods, and tax them in different ways. Some states have passed or interpreted their existing sales tax laws as meaning that digital goods are taxable. Other states have passed new or interpreted their existing laws as meaning digital goods are non-taxable.
Zamp Tip
It’s also vitally important to understand that sales tax rules and laws on digital goods are subject to change. Even regulations that look settled now can change later down the line as the market and economy changes.
If you sell digital goods, it’s vital to ensure you’re applying sales tax correctly in all of the states where you have sales tax nexus.
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Over half of US states still consider digital goods taxable. Sometimes this is because a state has not considered digital product taxability yet and these products default to taxable. Though, some states (like the New Jersey example above) have made a law or ruling on digital goods taxability and decided that they are taxable.
We recommend either contacting a state and local sales tax expert (SaLT) or carefully reading each state’s sales tax law.
In the table below, we have included links to sales tax laws or guidance on digital goods taxability in states where that is applicable.
Yes, both permanent and temporary access to digital goods is taxable in New Jersey. However, video-on-demand (VOD) and streaming services are non-taxable in New Jersey.
Yes, both digital goods and streaming services are taxable. However, purchases of digital goods by a qualified charitable organization or nonprofit are exempt. Newspaper and magazine subscriptions or the resale of a digital product are also exempt.
Yes, but with room for interpretation. While digital downloads are not expressly codified as taxable, the state has provided guidance that streaming services are taxable.
Yes; Rather than being taxed at state + all local rates, digital products sold in Tennessee are taxed at the state’s 7% rate + a standardized 2.5% local rate; Products like video games and digital magazines, periodicals or newspapers are not subject to the Tennessee sales tax; Textbooks that would be tax exempt in Tennessee are also exempt if sold in digital form.
The truth about sales tax on digital products is that it varies by state. This makes it difficult to know whether certain goods, like e-books, computer software, and digital videos, are taxed or not. The best way to tell whether goods are taxed is by speaking with a sales tax expert or using an automated sales tax solution like Zamp if you are selling various goods and services across states.
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Digital Goods Sales Tax: FAQ
Is there sales tax on digital products in California?
No, digital products are classified as tax-exempt in California.
Are newspapers accessed online subject to sales tax?
This depends on the state. Physical newspapers are not taxable in a majority of US states. And many of those same states do not tax digital goods where their physical equivalent is non-taxable. We advise checking with each individual state to determine if digitally accessed newspapers are taxable.
I sell my digital products through a marketplace like Etsy. Do I have to collect sales tax?
Online marketplaces are generally required to collect sales tax on behalf of the 3rd-party sellers who sell on their site. For example, if you sell downloadable books of sewing patterns on Etsy, Etsy would be responsible for collecting sales tax from buyers on your behalf. Read more about sales tax and online marketplaces here.
About the author
The Zamp Team
The Zamp Team consists of experienced writers and editors who are dedicated to researching sales tax topics to help readers make smart decisions about their business and sales tax compliance. Collectively, the team has over 200 years of sales tax experience.
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