From Wayfair v. South Dakota to the Tax Cuts and Jobs Act, it’s no secret that sales tax and the way we view it is changing. All across the nation, states are issuing letter rulings, asking questions, and amending laws to reflect an evolving marketplace where nearly everything can now be found or sold online.

But when it comes to collecting sales tax on a digital product like an ebook, song, or your favorite Netflix show, how does one fit them into a one-size-fits-all law that was created before digital products even existed?

For most states, the problem lies in it’s non-physical attributes. Nearly all sales tax laws under the Streamlined Sales and Use Tax Agreement (SSUTA) call for collection on items of “tangible personal property”, but if an iTunes recording can’t be held like CD album or an ebook read like a paperback novel, that definition falls short, causing the resulting aftermath to be confusing.

For some states, digital products are disregarded as taxable altogether, while for yet more, terminology and perspectives are stretched to include new product developments into old definitions. And while the specifics may vary, for the most part we can distinguish the states that tax digital products from those that don’t.

The general rule is as follows…

States That Generally Tax Digital Products

States That Don’t Generally Tax Digital Products

States That Don’t Have General Sales Tax

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Keep in mind that these are general sales tax protocols, and you should always double check with your state before making a taxation decision, as many exceptions exist and laws are always subject to change.

Last but not least, as long as the marketplace continues to develop, so too will our sales tax laws evolve to match – so make sure you stay up to date with the latest requirements!

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