Indiana: taxes sales that involve the electronic transfer of “specified digital products to an end user” as long as ongoing payments are not required for permanent access.Hawaii: includes digital products in the blanket general excise tax it applies to “virtually every economic activity” in the state.Connecticut: considers digital downloads to be in the same category as computer and data processing, and so applies the 1% state sales tax rate for this category of sales to digital download transactions.Colorado: considers digital versions of newspapers and magazines that would be taxable if sold in their physical form to also be subject to sales tax.Arizona: applies the definition of tangible personal property broadly to include digital products, and so taxes them in the same way.Arkansas: only applies sales tax to the transfer of digital products when it involves a subscription.Alabama: considered digital files to be tangible personal property, and so taxes them as such.There are currently 29 states that tax digital products, including apps, in some capacity. Wisconsin, for example, taxes “the sale, lease, license, or rental of specified digital goods” regardless of whether the purchaser has the right to use it on a “permanent or less than permanent basis and regardless of whether the purchaser is required to make continued payments for such right.” States that Tax Digital Products The issue of permanent or temporary access to the purchased digital content, which is what the Arkansas statute is based on, is one that various states parse differently. For instance, Arkansas only taxes digital products that involve subscription services, while South Dakota, Texas, and Utah tax any product delivered electronically that would be taxed if it were instead delivered in physical form. For instance, some states make a distinction between products accessed exclusively online as opposed to being downloaded to a device.Īpps but there are other issues of classification to contend with as well. When it comes to sales tax and the way states are approaching the issue of the taxation of digital products, it’s important to understand that these digital products can fall into one of several categories. As a consumer, you may want to check recent receipts from these app stores to see if you were charged sales tax for apps you purchased, just as a point of interest. That’s especially true from a seller’s point of view, as the taxability of an app depends on the state it’s purchased in and whether or not the seller has a nexus in that state.Īpple apps / iPhone apps and Android apps are subject to sales tax in many cases. Selling remotely over the internet is one of these, and when that selling involves digital products like apps, the issue of how and when to apply sales tax becomes even more complicated. As technology evolves, there emerge more and more situations that our current sales tax laws were just not designed to deal with.
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