Taxes on Digital Products

Shopify Partner
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All Shopify can say on this one is "Consult a local tax professional." I started selling digital eBooks on my Shopify store. Does anyone have an up-to-date list of the states that tax digital sales? My business is in California and I know I have to charge there.

 

Thanks for your help!

 

Mark

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Shopify Partner
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Thanks Alana. The list does provide states which charge sales tax on digital products. Now the second half of my question: I have a home-based business here in California (not on the list as a digital tax state). I assume this is called my nexus. If I sell digital products (ebooks) to a customer in Arizona (on the list as a digital tax state), do I need to charge that customer the Arizona sales tax and send that money to Arizona at tax time? Additionally, do I need to charge a California customer sales tax because California is my nexus, irrespective of the fact that it is not a digital tax state?

 

Thank you (and others) for your help.

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Hey Mark,

 

The nexus rules are different for each state that you do business in.  To me,   nexus = obligation to collect and file.   

 

As an online seller, you could potentially have nexus in more states other than California.  If you determine that you have nexus in Arizona, then you would register for a permit and then you would collect and file sales tax in that state also.

 

Here are a few things that an online seller should think about:

 

1) What is your nexus status in each state in which you sell? (i.e., Do you meet the tests? --physical, employee, inventory, economic, etc.)

2) Confirm if the state is origin-based or destination based (is the tax based on the 'shipped from' location within the state OR is the tax based on the buyer's location). 

3) Confirm the tax rates on the items that you're selling.    Some states charge different rates on items like clothing or big ticket items.  Some states consider  digital products to be taxable and some do not.  Some states have tiered sales tax rates on certain types of items.

 

I will say that my list is not 'all-inclusive', but hopefully this helps.   

 

Here is a blogpost that was recently updated by Taxjar.  It gives a short summary of the economic nexus thresholds by state.

 

https://blog.taxjar.com/economic-nexus-laws/

 

If you're unsure, it's always safer to have a tax person to review your entire situation.

 

Thanks,

Alana

 

 

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