Digital products mean movies, books and eBooks, music, ringtones, photographs and magazine and newspaper subscriptions. SaaS is different as compared to Digital products.

Downloads vs. Digital Products Accessed Online

Some states differentiate between digital products that you download to your own device and digital products that you access online but don’t download. (Expect to see states using language like “transferred electronically” to mean something downloaded or otherwise electronically accessed.)

Example: Some states consider you buying a movie and having it transferred electronically to your possession to be taxable, while “renting” that movie for a limited period of time is not taxable. So in this logic, you could buy and download a movie on a site like Amazon and pay tax on it, or “rent” it for a limited period of time on Amazon Prime Video and not pay tax on it.

Physical Property v. Digital Downloads

Another distinction is the difference in taxability between software, music, movies etc. bought in physical format (i.e. on a DVD) vs. software bought or accessed online. Software, movies, music and the like bought in a physical format were considered “tangible personal property” and subject to sales tax in essentially every state. But some states considered the equivalent product purchased and accessed electronically to be taxable, while others did not (presumably since it wasn’t purchased in a physical format.) For the states who consider digital products “tangible personal property” many of them state that the product is tangible because it can be “perceived by the senses.”

Products that are Normally Tax Exempt in Non-Digital Format

Some states specify that digital products are taxable in the state, but only if their physical equivalent is also taxable. For example, in Colorado physical newspapers that qualify as a “legal publication” are not taxable. And since a digital copy of that type of newspaper is considered another form of the newspaper, then a digital newspaper wouldn’t be taxable. On the other hand, non-“legal publication” newspapers, books, music, movies, etc. in digital form are taxable in Colorado in both physical and digital format. The law is similar in Minnesota. Digital products are taxable in Minnesota, but textbooks are not. By their logic, digital books would be taxable, but digital textbooks are tax exempt.

Sales Tax Applicability State Wise:

Alabama - Taxable

Alaska

Arizona - Taxable

Arkansas - Taxable

California - Non Taxable

Colorado - Taxable

Connecticut - Taxable

Florida - Non Taxable

Georgia - Non Taxable

Hawaii - Taxable

Idaho - Taxable - Permanent right to use the product. Non Taxable - Leasing or Renting

Illinois - Non Taxable

Indiana - Taxable

Iowa - Taxable

Kansas - Non Taxable

Kentucky - Taxable

Louisiana - Taxable

Maine - Taxable

Maryland - Taxable

Massachusetts - Non Taxable

Michigan - Non Taxable

Minnesota - Taxable

Mississippi - Taxable

Missouri - Non Taxable

Nebraska - Taxable

Nevada - Non Taxable

New Jersey - Taxable

New Mexcio - Taxable

New York - Non Taxable

North Carolina - Taxable

North Dakota - Non Taxable

Ohio - Taxable

Oklahoma - Non Taxable

Pennsylvania - Taxable

Rhode Island - Taxable

South Carolina - Non Taxable

South Dakota - Taxable

Tennessee - Taxable

Texas - Taxable

Utah - Taxable

Vermont - Taxable

Virginia - Non Taxable

Washington - Taxable

Washington D.C - Taxable

West Virginia - Non Taxable

Wisconsin - Taxable

Wyoming - Taxable