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Pennsylvania to tax digital downloads, August 2016

  • Jul 18, 2016 | Gail Cole

 E-books and other digital goods will be subject to Pennsylvania sales tax beginning August 1, 2016.

Update 7.20.2017: See Pennsylvania Department of Revenue Digital Products for more guidance.

There’s nothing like the threat of a credit downgrade to spur a state into action.

Fiscal Year 2015-16 was three-quarters over before Pennsylvania lawmakers agreed on a budget. Even then, the Republican-drafted budget became law without Democratic Governor Tom Wolf’s signature. The governor had pushed to increase and broaden the state sales and use tax in order to raise desperately needed revenue, and the budget did neither.

No one wanted to repeat that experience this year, and just weeks after it was due, lawmakers on both sides of the aisle are happy to announce this year’s budget is complete. It meets the governor’s goals of increasing the investment in education, funding treatment programs for the state’s growing number of heroin addicts, and reducing the deficit.

Tax on digital downloads

Beginning August 1, 2016, Pennsylvania sales and use tax is extended to digital downloads such as apps (think Pokémon Go add-ons), books, music, photos, and streaming videos.

Although new to Pennsylvania, this is not cutting edge legislation. Back in 2013, a Center on Budget and Policy Priorities’ State Fiscal Project report pointed out that taxing digital downloads is one way to bring state sales tax into the 21st century. It pointed out the absurdity of not taxing “various goods and services sold and delivered on the Internet — computer software, music, movies, games, and books, for example — even though these states tax the sale of identical items sold in physical stores.”

Digital downloads remain exempt in many states, but close to half now tax them. According to Michael Mazerov, a senior fellow with the center, “There is no good reason to exempt digital goods and services whose tangible counterparts are taxed.” Extending tax to digital goods and service could generate approximately $300 million annually for states (a conservative estimate); allowing them to remain exempt necessarily reduces revenue.

Yet many disagree with taxing digital goods and services. Pennsylvania Republican Rep. Seth Grove called it a “millennial tax” because that generation is the largest consumer of digital downloads (he would know: born in 1979, he is on the cusp of being a Millennial himself). He also questioned how the state would collect the tax from companies without a physical presence in Pennsylvania.

The Pennsylvania Department of Revenue has yet to release information regarding the new tax on digital goods and services. Yet under House Bill 1198, tax applies to the following:

  • Applications, commonly known as apps
  • Books and “any otherwise taxable printed matter”
  • Canned software
  • Games
  • Music and “any other audio, including satellite radio service”
  • Photographs
  • Video
  • “Any other otherwise taxable tangible personal property electronically or digitally delivered, streamed or accessed

Digital magazines and online newspaper subscriptions, which are exempt in tangible form, are exempt.

Tax automation software like Avalara AvaTax helps businesses comply with changes in product taxability, such as the new tax on digital goods and services in Pennsylvania. Learn more.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.