Digital Products Tax: How Many States Impose It?

State taxation policies have changed as a result of the growth of digital goods and services. Digital goods and services, which were formerly exempt from taxation, are becoming subject to taxes in an increasing number of states. However, how many states actually levy taxes on digital goods?

It’s crucial to comprehend what digital products are in order to respond to that inquiry. Electronically supplied intangible items known as “digital products” include software, e-books, music, movies, and other online services. Customers don’t need to get these things physically to use or consume them.

There will be 22 states that charge taxes on digital goods as of 2021. Alabama, Arizona, Colorado, Connecticut, Hawaii, Idaho, Indiana, Iowa, Kentucky, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Texas, Utah, Vermont, and Washington are some of these states.

Consequently, pre-packaged software that is intended for broad use and is often sold in stores or online is referred to as canned software. In states that charge sales taxes on digital goods, canned software is also liable to such taxes.

Remote sellers in Oklahoma are companies who don’t have a physical location there but nonetheless conduct business there. Remote sellers in Oklahoma are required to collect and remit sales tax to the state if their sales total more than $100,000 or 200 transactions.

Oklahoma is an origin-based sales tax state, which means that the location of the vendor, not the location of the customer, determines the applicable sales tax. Accordingly, a vendor domiciled in Oklahoma will be required to collect sales tax at the appropriate rate.

If a company has a physical presence in Oklahoma, such as a warehouse or an office, nexus is established. Nexus can also be established through economic activity, such as achieving $100,000 in sales or engaging in 200 transactions in the state.

Despite the fact that not all governments tax digital goods, the number of states that do is growing. To prevent any potential tax issues, companies who sell digital goods or offer online services should be familiar with the tax regulations in each state where they conduct business.