Sales Tax on TPP (Tangible Personal Property)
Tangible personal property (TPP) is any personal property that can be seen, weighed, measured, felt, or touched.
TPP typically does not include real property, however, some states do have sales tax on real estate transactions.
States often interpret the definition of TPP in the broadest possible terms.
For example, some states consider " telecommunication " as tangible personal property, even though most people would not consider this tangible in the strict sense of the word.
This issue has become even more present with the rise of digital technologies, which can blur the line between tangible and intangible.
Sales Tax on Services
Services for sales tax purposes are roughly organized into these four categories:
Business services: These include services for businesses such as advertising, computer services, human resources services, lobby and consulting and payroll services.
Personal services: These include services such as dry cleaning, hair care, and tanning salons.
Professional services: These include services provided by accountants, architects, attorneys, and doctors.
Maintenance and repair services: These include services that are provided to tangible personal property (i.e. cars, your house) or improvements to buildings and land (i.e. landscaping).
**With a few exceptions, state tax laws follow the below uniform approach:
Sales of TPP are subject to sales tax unless specifically exempted, and Services are not subject to sales tax unless explicitly included in its scope**
Sales Tax on Digital Products
The taxability of digital products under US sales tax laws is complex and constantly evolving. Since digital products were not in existence when most US sales tax frameworks were established, they do not always fit neatly into traditional sales tax definitions.
In many states, digital products are considered TPP and are treated similarly to physical goods. This is despite digital products such as music or video downloads are not what we commonly consider tangible at first glance.
However, the definition of tangible personal property in many states is broad enough and includes products that are "perceptible to the senses.”
In contrast, other states classify digital products as services, and their taxability may depend on which services the state has elected to tax. This adds another layer of complexity to the issue, as the taxability of services varies by state.
Sales Tax on Computer Software
Some states consider only the computer software delivered by a tangible medium, such as a pen drive, as tangible personal property subject to sales tax.
Some states consider electronically delivered software as taxable TPP, regardless of whether it is delivered electronically or by a tangible medium.
Certain states distinguish between prewritten and custom software.
Prewritten software is off-the-shelf software not designed and developed for a specific customer and is usually taxable as TPP.
On the other hand, custom software is tailor-made to the customer’s needs and is often seen as a non-taxable service.
Sales Tax on SaaS
SaaS is a cloud-based software delivery model where software applications are hosted by a third-party provider and remotely accessed over the Internet by customers.
Some states charge sales tax on Saas offerings and some don't so it's a mix again.