Digital Product Sales Tax: A Guide for Content Creators

Written by Quaderno

In today’s digital landscape, navigating sales tax obligations in the United States can feel daunting—especially for content creators selling a variety of digital products and services across state lines and internationally. 

This guide aims to clarify sales tax requirements for content creators like you. We’ll also cover Kajabi’s sales tax tool and guide you through setting up your tax codes.

Why Sales Tax Matters for Content Creators

In the U.S., sales tax applies to specific goods and services, with rates and rules varying significantly from state to state.

For digital creators, sales tax complexities increase due to digital transactions and diverse product offerings. By understanding your sales tax obligations, you ensure compliance and avoid unexpected penalties, allowing you to grow your business with confidence.

Are Digital Products Taxed?

Generally, physical goods are taxable, but digital product tax rules vary by state. Below, we cover key factors that affect tax obligations for digital products.

3 Factors to Understanding Sales Tax Liability

1. Physical Nexus

“Nexus” refers to a business connection within a state, often involving “sufficient physical presence.” Nexus can be established in various ways:

• Working from a home office
• Operating a physical store or office
• Employing a representative in another state
• Running an affiliate program
• Using tracking cookies on local computers

A physical nexus in a state requires you to collect sales tax as a local business.

2. Economic Nexus

Economic nexus relates to sales activity in a state. For example, surpassing specific sales or transaction thresholds can create a tax obligation in a state, even if you don’t have a physical presence there.

Each state has different sales thresholds, so check local laws to understand your obligations.

3. Determining Taxability of Digital Products

While physical goods are usually taxable, states vary in taxing digital products. In some states, the nature of your digital content—whether it's a service or end product—affects its tax status. For instance, creating a website might not be taxed, but delivering a digital ad might be.

Digital Product Categories for Content Creators

• Online courses
• Webinars
• Other streamed content
• Online memberships
• Online coaching and training services
• Consulting
• Digital art
• Downloaded books, such as eBooks and Kindle
• Downloaded music, digital audio files such as iTunes and podcasts
• Other downloaded electronic goods

Tax rules for these products depend on state definitions, which impact whether they're taxed as “goods” or “services.”

Steps to Determine Your Product's Tax Code

For Kajabi users, identifying the correct tax code is essential. Understand these three elements:

1. The nature of your digital product
2. Your location’s tax definitions
3. Your customers' location tax definitions

How to Set Up Tax Codes in Kajabi

After determining your product category, set up your Kajabi tax codes as follows:

• eService/Service: Customer location determines taxability.
• Standard rated/Good: Your location determines taxability.
• Standard rated/Service: Your location’s sales tax rules apply.
• Consulting/Service: Taxable in your home state but not across state lines.

Sales Tax Rules by State

Each U.S. state has its own sales tax rules for digital products, and some cities or counties add local taxes. Below is a quick-reference guide to digital product sales tax by state, with links for details.

Note: This list covers only e-services or digital products such as online courses, software, e-books and subscriptions, among others. Physical goods are not included in this list, because they’re almost always taxable, no matter where you’re located or where you’re selling.

This is the list of states in which you currently have to charge sales tax if you sell digital products:

Alabama

Digital products are taxable in Alabama. They are generally treated as tangible personal property and subject to taxation at the same rate as other tangible personal property. Learn more about sales tax in Alabama.

Alaska

Unlike other US states, Alaska does not have a state-level sales tax. Instead, local jurisdictions are allowed to decide if they want to levy a sales tax on digital products. Learn more about sales tax in Alaska.

Arizona

Digital products are taxable in Arizona and are considered tangible personal property subject to gross receipts tax, which is Arizona’s equivalent of sales tax. Learn more about sales tax in Arizona.

Arkansas

Digital products are taxable in Arkansas. Learn more about sales tax in Arkansas.

California

Digital products are tax exempt in California, including electronic data products like software, digital books (eBooks), mobile applications, and digital images. However, if accompanied by a physical copy or storage medium, the sale becomes taxable. Learn more about sales tax in California.

Colorado

Digital products are taxable in Colorado as they are considered tangible personal property. Exceptions may apply for certain electronic deliveries of legal publications. Learn more about sales tax in Colorado.

Connecticut

Sales of digital goods in Connecticut, including audio works, visual works, reading materials, or ringtones, are subject to sales and use taxes at the standard rate. Learn more about sales tax in Connecticut.

Florida

Digital products are tax exempt in Florida, as they are not considered tangible personal property. However, if sold alongside tangible personal property, the entire sale may be subject to Florida sales tax. Learn more about sales tax in Florida.

Georgia

As of January 1, 2024, specified digital products sold to end-users in Georgia are taxable if the end user has permanent use of the products and the transaction isn't conditioned upon continued payment. Learn more about sales tax in Georgia.

Hawaii

Digital products are taxable in Hawaii and are subject to the general excise tax, like most transactions in the state. Learn more about sales tax in Hawaii.

Idaho

Digital products in Idaho are taxable when the purchaser has the permanent right to use them, but exempt when leased or rented. Subscriptions follow a similar tax logic. Learn more about sales tax in Idaho.

Illinois

Digital products are tax exempt in Illinois as they are not considered the transfer of tangible personal property but rather intangibles. Learn more about sales tax in Illinois.

Indiana

Digital products are taxable in Indiana, which includes audio works, audiovisual works, and books. Learn more about sales tax in Indiana.

Iowa

As of 2019, digital goods are taxable in Iowa. Learn more about sales tax in Iowa.

Kansas

Electronically downloaded or digitized products are information and are tax exempt in Kansas. Learn more about sales tax in Kansas.

Kentucky

Digital products are taxable in Kentucky as they are considered tangible personal property. Learn more about sales tax in Kentucky.

Louisiana

Digital products are taxable in Louisiana. Learn more about sales tax in Louisiana.

Maine

Digital products are taxable in Maine if the non-digital physical form would be subject to sales tax. This is a tricky one! Learn more about sales tax in Maine.

Maryland

Most digital goods are taxable in Maryland. Learn more about sales tax in Maryland.

Massachusetts

Digital products are tax exempt in Massachusetts, including music, video, reading materials, and ringtones. Learn more about sales tax in Massachusetts.

Michigan

Digital products are tax exempt in Michigan. Learn more about sales tax in Michigan.

Minnesota

Digital products are taxable in Minnesota, except for students' digital textbooks and instructional materials. Learn more about sales tax in Minnesota.

Mississippi

Digital products are taxable in Mississippi, except for school textbooks. Learn more about sales tax in Mississippi.

Missouri

Digital products are tax exempt in Missouri. Learn more about sales tax in Missouri.

Nebraska

Digital products are taxable in Nebraska, including digital music, movies, TV shows, and books. Learn more about sales tax in Nebraska.

Nevada

Digital products are tax exempt in Nevada, including audiovisual works, whether sold permanently or temporarily. Learn more about sales tax in Nevada.

New Jersey

Digital products are taxable in New Jersey, including digital audio-visual works, audio works, and books. Streaming services, however, are non-taxable. Learn more about sales tax in New Jersey.

New Mexico

Digital products are taxable in New Mexico under the state's gross receipts tax. Learn more about sales tax in New Mexico.

New York

Digital products are tax exempt in New York, including music, ringtones, movies, and books. Learn more about sales tax in New York.

North Carolina

Digital products are taxable in North Carolina, including various digital works and publications delivered electronically. Learn more about sales tax in North Carolina.

North Dakota

Digital products are tax exempt in North Dakota, including specified digital products transferred electronically. Learn more about sales tax in North Dakota.

Ohio

Some digital products are taxable in Ohio, including digital audiovisual work, digital audio work, and digital books. Learn more about sales tax in Ohio.

Oklahoma

Digital products are tax exempt in Oklahoma, including digital music, movies, ringtones, and books. Learn more about sales tax in Oklahoma.

Pennsylvania

Photos, books, games, and other downloads are taxable in Pennsylvania. Learn more about sales tax in Pennsylvania.

Rhode Island

Digital goods are taxable in Rhode Island, including specified digital products starting October 1, 2019. Learn more about sales tax in Rhode Island.

South Carolina

Digital products are not taxable in South Carolina as they are not specifically included in the definition of tangible personal property. Learn more about sales tax in South Carolina.

South Dakota

Digital products are taxable in South Dakota, whether transferred electronically for temporary or permanent use. Learn more about sales tax in South Dakota.

Tennessee

Digital products are taxable in Tennessee, including digital audiovisual works, audio works, and books. Learn more about sales tax in Tennessee.

Texas

Digital products are taxable in Texas, similar to tangible personal property sold in physical format. Learn more about sales tax in Texas.

Utah

Digital products are taxable in Utah, considered the same as tangible personal property if the physical form is also taxable. Learn more about sales tax in Utah.

Vermont

Digital products are taxable in Vermont, whether transferred electronically for permanent or temporary use. Learn more about sales tax in Vermont.

Virginia

Digital products are tax exempt in Virginia, including software, downloaded music, ringtones, and reading materials. Learn more about sales tax in Virginia.

Washington

Digital products are taxable in Washington state, including various digital goods regardless of how they are accessed. Learn more about sales tax in Washington.

Washington, DC

Digital goods in Washington D.C. became taxable as of January 1, 2019. Learn more about sales tax in the District of Columbia.

West Virginia

Digital products are tax exempt in West Virginia, including audio works, audiovisual works, and books. Learn more about sales tax in West Virginia.

Wisconsin

Digital goods are taxable in Wisconsin, including audio works, audiovisual works, books, and codes used to purchase works. Learn more about sales tax in Wisconsin.

Wyoming

Digital products are taxable in Wyoming, including digital audio works, audiovisual works, and books. Learn more about sales tax in Wyoming.

3 Basic Steps for Sales Tax Compliance

1. Register for Sales Tax

Register for a valid US sales tax permit, or a seller’s permit, before collecting tax. Most states offer online registration through their Department of Revenue.

The good thing is that many states allow you to register online with their Department of Revenue. Check out these registration and filing guides by state. Usually you’ll either receive your sales tax permit number instantly, or within 10 business days. If you register via snail mail, it may take 2-4 weeks.

Here’s some standard information you’ll need when registering for a US sales tax permit:

• Your personal contact info
• Your business contact info
• Social security number (SSN) or Federal Employer Identification Number (FEIN) also known as Employer Identification Number (EIN)
• Business entity (sole-proprietor, LLC, S-Corp, etc.)

Note: You can register in all 24 SSUTA streamlined states at once, with one registration process. Sounds convenient, but this may come with some unnecessary tax liabilities. You’d likely end up liable for tax in some states even though you don’t have nexus there, simply because you’ve registered. Learn more on the SSUTA tax registration page.

2. Calculate and Collect sales tax

Calculate the tax rate for each sale based on your location or your customer’s location. Kajabi’s sales tax tool can help automate this process.

3. File Tax Returns

You can file state sales tax returns online at the state’s Department of Revenue website. But all the preparation before you get to that point can be complicated.

1. Note of the frequency of returns. Is it monthly, quarterly, annually? Generally the more you sell in a state, the more frequently they want you to file. So actually the frequency of your filing can be subject to change!
2. Note the deadlines for filing. Most states expect you to file by the 20th day of the following month, but this varies a bit.
3. Note the breakdown of tax reporting you need to provide. Some state sales tax returns don’t just want to know how much tax you collected in the state generally. They want tax collection broken down by county, city, and any other locality. Keeping clear records will help you on this point! Filing tax returns is much easier if you track your input and output taxes as you make sales and purchases.

Note: File “zero reports” if you didn’t collect anything in a certain jurisdiction where you’re registered with a tax permit. Yes, you still have to file.

If you need some help with filing, check out how to prepare a sales tax return.

Sales Tax Obligations in Other Countries

For content creators selling internationally, sales tax rules also apply in other regions:

Australia GST

Content creators selling to Australian customers may be subject to Goods and Services Tax (GST) if they pass the tax registration threshold. Resources available on the Australian Taxation Office website offer comprehensive guidance. Australia GST guide.

Canada GST

Similar to Australia, selling to Canadian customers involves adhering to GST/HST rules, detailed in this guide to GST in Canada. Some of the country’s provinces also have their own taxes on digital products and rules for foreign sellers. You can learn more about rules in these specific regions here:

• British Columbia
• Saskatchewan
• Manitoba
• Quebec

United Kingdom VAT

Selling digital products to UK customers requires VAT compliance once you’ve passed a certain threshold of sales to British customers. Learn more in this United Kingdom VAT Guide for Businesses.

How Kajabi Helps You with Sales Tax 

Kajabi provides content creators with tools for automatic sales tax calculation, threshold alerts, and reporting. These solutions help you focus more on your content and clients—not taxes.

This guide provides a foundation for understanding sales tax considerations for content creators. However, due to the complexity of tax laws, consulting with a tax professional is always recommended.