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How digital goods are taxed in Washington, DC

  • Oct 9, 2017 | Gail Cole

 Streaming video content has its perks.

Not too many years ago, the only legal way to watch a movie that wasn’t showing on television or at the theater was to rent a DVD. Before that, cinephiles rented VHS tapes. Now that online streaming services dish up an enormous assortment of movies, shorts, and shows on demand, DVD shops have all but disappeared. Likewise, state sales and use tax laws must evolve to keep up with ever-advancing technology.

Determining the taxability of digital goods and software is particularly complex. Hats off to the District of Columbia Office of Tax and Revenue (OTR) for striving to simplify this complex subject in OTR Notice 2017-06.


The District of Columbia taxes data processing services (the lease, rental, sale, or maintenance of any computer software) and information services (information compiled, gathered, or maintained and made available to the public or to a segment of industry for consideration). The following are therefore taxable:

  • Canned and custom software that’s delivered on tangible personal property
  • Canned and custom software that’s downloaded
  • Canned software that’s been customized
  • Software as a Service

Sales of digital news and digital periodicals are also taxable as “the furnishing of general or specialized news or current information” and as a “news clipping service.”


On the other hand, the district does not tax sales of the following:

  • Digital audio books
  • Digital books
  • Digital music that’s downloaded
  • Digital music that’s streamed
  • Video that’s downloaded

Both exempt and taxable

Streaming video services cannot be easily categorized as taxable or exempt. While customers don’t pay sales tax on these services, streaming video service providers are subject to a 10 percent gross receipts tax on the provision of such services, and they could pass that 10 percent on to consumers.

The OTR defines “streaming video” as “video content sent in compressed form over the internet and played immediately, rather than being saved to a hard drive.”

You may not care too much about the taxability of digital goods if you’re simply a consumer — you either have to pay it or you don’t. But if you’re a seller of digital content, you need to get tax right. Learn more about software and sales tax at the Avalara Resource Center.

photo credit: To Shreds, You Say via photopin (license)

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.