Calculating State Sales Tax on iTunes and Other Digital Downloads

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Many states have begun charging sales tax on digital downloads from sites like iTunes, Amazon, and other providers. Some may see this taxing as customary and fair, and others view it as an attempt for the state to pump up tax revenues. New Jersey was the first state to impose a tax on digital products in 2006, and most other states have followed suit.

These types of sales taxes are typically levied on downloads of digital audio, video, ebooks, and ringtones, but this can vary considerably across state lines. Downloaded software or software updates are generally subject to separate, more complex rules.

Key Takeaways

  • Not all states tax digital downloads, and the ones that do often tax them in different ways.
  • Even if your state charges a sales tax on digital downloads, they might not collect it on each purchase.
  • Some online retailers do not have to collect out-of-state sales taxes if their principal location is in a state where they must abide by only their own tax rules, not those in the states where their customers reside.

States That Tax Downloads

Many states have passed laws that impose sales taxes on digital products, but "digital products" can be defined differently in each state. One state may include iTunes digital downloads, while another may tax only ebooks. Several states have adopted the Streamlined Sales Tax Governing Board (SSTGB) definition, providing some uniformity to this complex issue. Others do not define digital products in their legislation at all, and most of these do not impose a sales tax on these products.

The federal Digital Goods and Services Tax Fairness Act of 2011 prohibits states from taxing digital products at a rate that's not consistent with its other sales tax laws.

  • Alabama: No specific definition of digital goods.
  • Arizona: No specific definition of digital goods.
  • Arkansas: Digital goods are defined by state legislation.
  • California: No specific definition of digital goods. Does not affirmatively tax these products.
  • Colorado: No specific definition of digital goods.
  • Connecticut: Digital goods are defined by state legislation.
  • District of Columbia: Digital goods are defined by District code.
  • Florida: No specific definition of digital goods. Does not affirmatively tax these products.
  • Georgia: Digital goods are defined by state legislation, but the state does not affirmatively tax these products.
  • Hawaii: No specific definition of digital goods.
  • Idaho: No specific definition of digital goods.
  • Illinois: Digital goods are defined by state legislation, but the state does not affirmatively tax these products.
  • Indiana: Uses the SSGTB definition.
  • Iowa: Digital goods are defined by state legislation.
  • Kansas: No specific definition of digital goods. Does not affirmatively tax these products.
  • Kentucky: Uses SSGBT definition.
  • Louisiana: Digital goods are defined by state legislation.
  • Maine: Digital goods are defined by state legislation.
  • Maryland: No specific definition of digital goods. Does not affirmatively tax these products.
  • Massachusetts: No specific definition of digital goods. Does not affirmatively tax these products.
  • Michigan: No specific definition of digital goods. Does not affirmatively tax these products.
  • Minnesota: Digital goods are defined by state legislation.
  • Mississippi: Digital goods are defined by state legislation.
  • Missouri: No specific definition of digital goods.
  • Nebraska: Uses SSGBT definition.
  • Nevada: Uses SSGTB definition but does not affirmatively tax these products.
  • New Jersey: Uses SSGTB definition.
  • New Mexico: No specific definition of digital goods.
  • New York: No specific definition of digital goods. Does not affirmatively tax these products.
  • North Carolina: Digital goods are defined by state legislation.
  • North Dakota: Uses SSGTB definition but does not affirmatively tax these products.
  • Ohio: Digital goods are defined by state legislation.
  • Oklahoma: Digital goods are defined by state legislation, but the state does not affirmatively tax these products.
  • Pennsylvania: No specific definition of digital goods.
  • Rhode Island: Digital goods are defined by state legislation.
  • South Carolina: No specific definition of digital goods.
  • South Dakota: No specific definition of digital goods.
  • Tennessee: Uses SSGTB definition.
  • Texas: Digital goods are defined by state legislation.
  • Utah: No specific definition of digital goods.
  • Vermont: Uses SSGTB definition.
  • Virginia: No specific definition of digital goods, and the state specifically exempts sales of digital products from taxation.
  • Washington: Uses SSGTB definition.
  • West Virginia: Digital goods are defined by state legislation, but the state does not affirmatively tax these products.
  • Wisconsin: Uses SSGTB definition.
  • Wyoming: Uses SSGTB definition.

In most cases, states with unclear legislation do not tax all, if any, digital downloads. States that have adopted SSGTB guidelines generally tax these products.

This area of taxation is an ever-changing landscape. If you're a seller, contact the state's Department of Revenue or Comptroller's Office for specific legislation and rules to find out exactly what you must tax and what sales you don't have to worry about.

Why Didn't They Charge Me for the Tax?

Even if your state made the list for affirmatively charging a sales tax on digital downloads, you may not see a sales tax charge on your electronic receipt.

Some online retailers do not have to collect out-of-state sales taxes if their principal location is in a state where they must abide by only their own tax rules, not those in the states where their customers reside. These retailers must only charge sales tax if they're subject to a legal concept called nexus, meaning they have a physical presence or affiliate in your state.

Although your state may require retailers to charge sales tax on digital products, remote sellers like iTunes may only be required to collect and remit sales taxes there if they have nexus.

Frequently Asked Questions (FAQs)

Why are digital downloads taxed?

Digital downloads are taxed in some states for the same reason other products are taxed: to create revenue that can be applied to public services, such as roads or schools. Most sales taxes are levied on "tangible" goods (that is, goods that are physically perceptible). In some states, digital downloads are considered tangible because they can be seen or heard.

How much is the tax on a digital download?

Sales taxes vary from state to state. While some states charge nothing, others charge up to 7%. (California charges 7.25% sales tax but does not affirmatively tax digital downloads.) Likewise, some states, such as Connecticut, define exactly how much tax is to be collected on digital products, while others define them as taxable or tax-exempt.

Article Sources

  1. State of New Jersey Department of Treasury. "Tax Notes - Digital Property (06/28/07)."

  2. Streamlined Sales Tax Governing Board. "Rules and Procedures," Page 39.

  3. Congress.gov. "H.R.1860 - Digital Goods and Services Tax Fairness Act of 2011."

  4. Multistate Tax Commission. "2020 Compliance Workshop Digital Goods: How States Define, Tax and/or Exempt," Slide 35.

  5. Tax Policy Center. "How Do State and Local Sales Taxes Work?"

  6. California Department of Taxes and Fee Administration. "California City & County Sales & Use Tax Rates."

  7. State of Connecticut Department of Revenue Services. "Sales and Use Taxes on Digital Goods and Canned or Prewritten Software," Page 1.