Why tax digital goods and streaming?
- The digital economy has transformed how goods and services are consumed
- States are redefining tax rules to cover digital items like E-books, Digital software, Digital videos, Live streaming platforms (e.g., Netflix, Spotify)
- These items challenge traditional tax models built for physical goods
The federal framework
Internet Tax Freedom Act (ITFA)
- Enacted permanently in 2016
- Bans taxes on Internet access
- Defines access as connecting to content, email, and online services
- Allows taxation of digital goods/services (e.g., downloads, streaming)
- No discrimination against digital formats
Taxation varies by state (As of May 2025)
- 45 states + District of Columbia have sales tax
- 5 states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire & Oregon
- Digital tax policies vary widely across these jurisdictions
States that tax digital goods
Washington:
- Taxes all digital products: downloads, streaming & subscriptions
- Covers music, movies, e-books, software
- Sales tax: 6.5% + up to 4.1% local
Georgia (Effective Jan 1, 2024):
- Taxes digital goods with permanent use (e.g., downloads)
- Streaming subscriptions generally exempt
- Sales tax: 4% + up to 5% local
States that exempt digital goods
California:
- Exempts digital goods unless tied to a physical product (e.g., a flash drive)
- Some local utility taxes may apply to streaming services
West Virginia:
- Exempts sales & use tax on audio, video, and books delivered electronically
- Electronically delivered digital goods are not subject to the state’s 6% sales tax
No sales tax states
Alaska, Delaware, Montana, New Hampshire, Oregon
- No statewide sales tax
- Note: Alaska allows local taxes that may apply to digital services in certain municipalities
Key challenges
- Inconsistent definitions of “tangible property”
- Some states consider digital goods tangible if seen/heard
- Others exempt them as intangible
Wayfair Case (2018):
Gave states authority to tax remote sellers based on economic nexus
(e.g., $100K in sales or 200+ transactions annually)
Trends to watch
📊 States seek more digital revenue
Example:
Maryland’s Digital Ad Tax (2021):
- 2.5%–10% on digital ad gross revenue
- Still under legal challenge
More states are targeting digital platforms and services as tax bases expand.
Digital taxation in the US is fragmented and complex.
Businesses must:
- Monitor each state’s rules
- Track economic nexus thresholds
- Evaluate taxability of their offerings
Let FinStackk simplify your digital tax compliance.
Reach out today!