Ebook Tax by State
- Aug 27, 2013 | Gail Cole
Last updated 3.27.2015
Updated, 9.8.2014: Ohio law changed, effective January 1, 2014, and digital products are now subject to Ohio sales tax. The definition of "digital products" in Ohio now conforms to the Streamlined Sales Tax Project requirements. Read the FAQs.
The number of states taxing digitally or electronically transferred goods is expanding. Currently, almost half the states in the union apply sales tax to digital books, downloaded music, and even ringtones.
The motivation for expanding sales tax to include digital books and music and movies is understandable. According to the Book Industry Study Group, sales of ebooks have increased by 45% since 2011, and they haven't yet plateaued.
Maine and Minnesota are the most recent states to tax the nook. Maine's expanded law, which took effect on June 26, 2013, taxes digital products transferred to the purchaser electronically if those items "would be subject to tax under this Part [of the law] as a sale of tangible personal property."
Generally, sales tax is imposed when:
- The product is delivered electronically to a purchaser located in the state;
- The product is received by the purchaser at the seller's location in the state;
- A billing address in the state is provided by the purchaser in connection with the transaction; or
- A billing address in the state is indicated in the seller's business records.
States that tax such products include:
- Kentucky taxes digital audio works and digital books. Digital audio/visual works are exempt.
- Minnesota (read Minnesota's SST Taxability Matrix)
- New Jersey
- North Carolina (read North Carolina's SST Taxability Matrix)
- Ohio (began taxing "digital products," including books, music and videos delivered electronically, on January 1, 2014)
- South Dakota
- Tennessee (read Tennessee's SST Taxability Matrix)
- Vermont (read Vermont's SST Taxability Matrix)
- Washington State
Even many countries in the European Union tax digitally delivered books, though often at a reduced rate.
States that currently exempt digital products include:
- New York (see also TSB-M-11(5)S)
- North Dakota
- Ohio (digital products were exempt in Ohio prior to January 1, 2014, Ohio.)
- Rhode Island
- West Virginia
Meanwhile, federal lawmakers are concerned that states are becoming tax happy with respect to digital goods and services. The Digital Goods and Services Tax Fairness Act, introduced in June, would prevent "state and local governments from applying taxes to those products that do not apply to similar tangible goods." United States Senators Ron Wyden (D-Oregon) and John Thune (R-South Dakota) introduced the legislation in order to "clarify federal rules related to the taxation of digital goods and services, and prevent unfair and duplicative taxation."
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