Georgia’s governor recently signed a new sales tax law making digital goods such as e-books, movies, video games and digitally downloaded photographs taxable. The law goes into effect on January 1, 2024 and is just one more in a long line of US states deciding how they want to handle tax on items sold in digital format.
What are digital goods?
Items often considered digital goods in state definitions include downloaded:
- Digital books
- Digital movies and television
- Digital music
- Video games
- Digital newspapers, magazines and other periodicals
How are digital goods taxed?
Traditionally, states have defined taxable goods as “tangible personal property.” Tangible literally means “perceptible by touch.” Some opponents of tax on digital items argue that you can’t touch a ringtone or a piece of digital art. But other states argue that since most digital goods are copies of an item that would previously have been sold as tangible personal property, such as an e-book to a paper book, then these items are taxable. Still others simply state that digital goods are taxable, whether or not they are also sold in a tangible format.
There are some nuances when it comes to sales tax on digital goods. Many states see a difference between the purchase of a digital product (such as purchasing a digital copy of Avengers: Endgame from Apple) and simply “renting” a digital product (such as renting Avengers: Endgame from Apple for three days.) The states that tax digital goods often consider the purchase taxable while the rental is non-taxable since the buyer doesn’t retain ownership of the rented digital item.
The same goes for “streaming services.” In many cases, streaming services are non-taxable since ownership of the movies, tv shows, songs, etc. being streamed is not transferred to the purchaser. However, some states, like West Virginia, also consider those taxable. This can also apply to digital items such as online classes. In many cases, a class streamed online is non-taxable, though again, that varies by state and how the class is handled. And providing downloads or other digital goods for students may make the class taxable.
Further, most states, even when they tax digital items, do not require a retailer to collect sales tax on items that, if sold in tangible format, would be non-taxable. For example, newspapers are non-taxable on most occasions. So a digital newspaper would likely not be taxable either. In Minnesota, both paper books and e-books are taxable but textbooks in both formats are non-taxable.
Digital Goods Sales Tax Requirements by US State
As with any relatively new technology, it can take states time to decide how they will treat them for tax purposes. The below table outlines how digital goods are treated in each state.
Keep in mind that this is subject to change. Like Georgia, the state of Missouri has also recently considered applying sales tax to digital goods, but hasn’t yet changed the law.
We recommend using the below table as a starting place, but reading each state’s specific law and definition to ensure that the digital goods you sell fall into that state’s guidelines. If you have questions or are unsure, HOST is here to perform a custom sales tax matrix for you so you can be sure you are charging sales tax to the right customers.