Are online courses taxable?
Update, December 2020: The taxability of online education is coming under scrutiny because of the COVID-19 pandemic. Learn more at Are online classes subject to sales tax, Online education content is exempt from North Carolina sales tax, and What does the future hold for B2B events.
We talk a lot about sales tax and physical products on this blog, but there’s another area of sales that doesn’t get much attention: the sale of online courses. These courses can take many forms, such as live webinars, prerecorded seminars that include books and e-courses that require users to download materials.
The industry is growing. In fact, according to LearnDash.com, the global e-learning market is expected to grow to $3.8 billion in just three short years. That’s a 900 percent increase since the year 2000.
As you can imagine, the way sales tax is collected on these courses is varied and depends on how states write their laws.
Should I collect sales tax on online courses?
The e-course boom has a lot of entrepreneurs offering the online classes to customers, but many are confused about whether or not to collect sales tax. And the answer isn’t a simple yes or no because it depends on the state law where you’re selling the courses.
Here are a few examples of how certain states deal with sales tax and online courses.
- In Wisconsin, you should not collect sales tax if you sell a live educational online seminar, but if the seminar is prerecorded, sales tax should be collected. Prerecorded seminars are excluded from sales tax if attendees are able to interact with other students or the instructor, or are evaluated by the instructor.
- In New York, pre-written software that allows people to earn educational credits or download the course to their computer is taxable. But an e-course that offers online mentoring is not because that type of course is considered purely educational.
- In Texas, if you sell licenses to access your e-course, you should collect sales tax on the transaction. And if you offer a reference library to the students, sales tax should be collected as the Texas Comptroller considers that the sale of information services.
- In Idaho, if your customer downloads an e-course that includes books or videos, it is subject to sales tax. However if your course consists of software that can be “delivered electronically, accessed remotely, or delivered by the load and leave method where the seller loads the software at the user’s location but doesn’t transfer any tangible personal property containing the software to the user,” it is not taxable.
- In Florida, sales of digital information via an online course are not taxable as long as the information is delivered electronically to the customer’s computer screen. That’s because the Florida Department of Revenue does not consider digital goods to be personal tangible property.
Because every state has different rules, it’s important to understand the rules in effect where you sell your online courses. But keep in mind that every state will require you to collect sales tax on any tangible personal property that you sell in relation to your e-course, such as books or CDs.
To determine which rules apply to your sales, use this handy link to state government websites and find the appropriate contact information.
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