Sales Tax on Digital Products by State
What Counts as a Digital Product
Digital products for sales tax purposes include any product delivered electronically rather than in a physical format. The most common categories are digital audio (music downloads, audiobooks, podcasts sold individually), digital video (movie and TV downloads, streaming purchases, video courses), digital books (ebooks, digital magazines, digital newspapers), software (downloadable software, desktop applications), SaaS and cloud services (web applications accessed through a browser), digital images and art (stock photos, digital illustrations, NFTs in some states), online courses and educational content (video courses, webinars, tutorial series), and digital subscriptions (streaming services, digital publications, app subscriptions).
The key distinction that determines taxability in most states is whether the digital product has a physical equivalent that would be taxable. An ebook is the digital equivalent of a printed book. Downloaded music is the equivalent of a CD. States that take this "equivalent" approach generally tax digital products that would be taxable if sold in physical form. States that take a "technology-neutral" approach tax digital products regardless of whether a physical equivalent exists.
States That Tax Digital Products
States that broadly tax digital products, including downloads and electronically delivered goods, include Alabama, Arizona, Colorado, Connecticut, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. These states generally treat digital products as taxable tangible personal property or have enacted specific digital goods legislation.
Within this group, the specific types of digital products that are taxable can still vary. Some of these states tax all digital products broadly, while others only tax specific categories (for example, taxing downloaded software but not ebooks). The Streamlined Sales and Use Tax Agreement (SSUTA) provides standardized definitions for digital products that member states follow, including "specified digital products" (digital audio, video, and books transferred electronically) and "digital codes" (codes providing access to digital products). SSUTA member states that have enacted these provisions apply consistent definitions, while non-member states use their own terminology.
States That Generally Exempt Digital Products
States that generally do not tax digital products, or that have no specific legislation addressing them, include California, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Missouri, New York, Oklahoma, and Virginia. However, "generally exempt" comes with significant caveats. California does not tax digital downloads but does tax "canned" (pre-written) software delivered on physical media. Florida does not tax most digital products but does tax certain communication services. New York does not tax most digital downloads but taxes pre-written software.
The lack of clear legislation in some states creates uncertainty for sellers. If a state has not specifically addressed the taxability of digital products, the default position depends on how the state defines "tangible personal property." If the state's definition requires a physical component, digital products fall outside the definition and are not taxable. If the state has an expansive definition or has extended its sales tax to digital goods through administrative rulings, they may be taxable even without specific legislation.
Software Taxability
Software has the most complex taxability treatment of any digital product category because states distinguish between canned software (pre-written, off-the-shelf software sold to multiple customers), custom software (developed specifically for one customer to their specifications), and SaaS (software accessed through a browser without downloading). Canned software is taxable in the majority of states regardless of delivery method (physical or download). Custom software is exempt in most states because it is treated as a service. SaaS is taxable in approximately 20 states, including Connecticut, New York, Ohio, Pennsylvania, Texas, and Washington.
For ecommerce sellers of software products, the distinction between canned and custom software matters when you sell products that have a base version (canned) with customization options. If the customization is substantial and specific to each customer, the product may qualify as custom software in states that exempt it. If the customization is minor (choosing features, entering a business name), the product is still canned software. Consult state-specific guidance or a tax advisor for borderline cases.
Streaming and Subscription Services
Streaming services (Netflix-style access to content without downloading) are taxed in approximately 25 to 30 states as of 2026. States that tax streaming generally treat it the same as digital downloads, reasoning that the customer is accessing the same content regardless of whether it is downloaded or streamed. States that exempt streaming often draw a distinction between a "transfer" of digital property (a download, which transfers ownership) and "access" to digital property (streaming, which does not transfer ownership).
Digital subscription services, including SaaS subscriptions, streaming subscriptions, digital publication subscriptions, and app store subscriptions, follow the same state-by-state patchwork. The recurring nature of subscriptions adds a practical complication: if a state's taxability rules change mid-subscription, you need to start or stop collecting tax at the correct date. Tax automation software handles this by updating rates and taxability rules automatically.
Online Courses and Educational Content
Online courses, webinars, tutorial videos, and educational downloads occupy a gray area in many states. Some states tax them as digital audio/visual products. Other states exempt them as educational services. The distinction often depends on the format (a recorded video course may be treated as a taxable digital product, while a live webinar may be treated as an exempt service) and the state's specific rules about digital goods versus services.
If you sell online courses or educational content, check the taxability in each state where you collect. Platforms like Teachable, Thinkific, and Kajabi may or may not handle sales tax collection correctly for all states, depending on their product tax code mapping. Verify their tax settings against each state's actual rules for digital educational content.
How to Handle Digital Product Tax on Your Store
If you sell digital products, assign the correct product tax category in your ecommerce platform or tax software. Do not leave digital products in the default "tangible personal property" category, as this may result in overcollection in states where digital products are exempt. TaxJar and Avalara both have specific product tax codes for different types of digital products (digital audio, digital video, digital books, canned software, SaaS, etc.), and these codes map to each state's specific taxability rules.
On Shopify, assign the appropriate digital product tax category under each product's settings. If Shopify's built-in categories do not have a specific match for your product type, connect a third-party tax service with more granular classifications. On WooCommerce, use a tax plugin that supports digital product categorization.
Keep in mind that digital product taxability is one of the fastest-changing areas of sales tax law. States are continuously updating their positions as digital commerce grows and as legislatures address revenue gaps from untaxed digital transactions. Review your digital product taxability settings at least annually, or use a tax service that automatically updates when state laws change.