Digital Products

A digital product is a product transferred electronically to a customer. Transferred electronically means the purchaser accesses or obtains the product in a way other than a tangible item, for example a USB drive.

Common ways to transfer electronically include:

• Downloading
• Streaming
• Receiving a product by email
   

Note: Prewritten computer software is always considered tangible personal property. This is true no matter how the software is transferred to the purchaser. For more information, see Computer Software.  

Taxable Sales  

Specified digital products, other digital products, and digital codes are taxable, including:

• Digital audio works, either live or prerecorded, such as music, songs, speeches, audio books, and other sound recordings
• Digital audiovisual works such as movies, music videos, news, entertainment, and live or prerecorded events  
  • This does not include digital photos  
• Digital books or e-books such as novels, biographies, and dictionaries  
  • This does not include periodicals, magazines, newspapers, blogs, or other news and information products
• E-Greeting cards
• Online games  
• Digital codes that give the purchaser access to the digital products listed above  
  • This does not include gift cards or similar products

Bundled Transactions

A bundled transaction occurs when taxable items and nontaxable items are combined and sold for a single price. The sale is taxable unless the price of the taxable item or service is minimal.

To be minimal, the seller’s purchase price or sales price for the taxable products must be 10% or less of their total purchase or sales price for the bundled products.  

Note: To determine if a transaction is taxable, sellers must use their purchase price or the sales price – and not a combination of the two.

Nontaxable Sales

A digital product is not taxable when both are true:

• It is transferred electronically
• It is not listed in the above definitions of specified digital products, other digital products, and digital codes

Nontaxable digital product examples:

• Access to digital news articles
• Charts and graphs, for example PDFs
• Digital photos and drawings (see Photography)
• Logos and designs

Webinars

Charges for live or pre-recorded webinars are taxable unless they meet all of the following requirements:

• Presentation is accessed electronically
• Online participants and the presenter can interact with each other while the participants view the presentation
• If there is also an in-person event, admission to the in-person presentation is not taxable and any limits on the amount of interaction (and when it occurs) are the same for both online and in-person participants

Online Classes

Online classes a student attends as part of a course of study at a post-secondary school, college, university, or private career school are not taxable.  

Textbooks and Instructional Materials

The following items are exempt:

• Textbooks for use in a course of study at a school, college, university, or private career school.
• Instruction materials – including digital audio clips and audiovisual clips – for use in a course of study at a post-secondary school, college, university, or private career school.

Sourcing Digital Products

The sale or purchase of a digital product takes place when the seller transfers possession to the purchaser or when the product is first used, whichever comes first.  

For tax purposes, the sale of a digital product occurs at – or is sourced to – the purchaser’s address the seller has on file.  

If you are located in or make sales into an area with a local tax, you may owe local sales our use tax. See Local Sales and Use Taxes.