Which Products Are Taxable Online

The Default Rule: Tangible Products Are Taxable

The starting point for sales tax is that all tangible personal property (physical products you can touch) is taxable unless a specific exemption applies. Electronics, home goods, tools, toys, beauty products, sporting goods, pet supplies, furniture, and general merchandise are taxable in all 45 sales tax states with no exceptions. If your product catalog consists entirely of standard tangible goods in these categories, product taxability is straightforward, everything is taxable everywhere, and the default tax settings on your ecommerce platform work correctly without modification.

Complexity enters when you sell products that fall into categories with state-specific exemptions or reduced rates. These categories create a patchwork of rules that requires either manual research for each state or automated classification through sales tax software that maintains product taxability databases. The major variable-taxability categories are outlined below.

Clothing and Apparel

Clothing is fully exempt from sales tax in four states: Pennsylvania, New Jersey, Minnesota, and (with some restrictions) New York. In these states, standard clothing and footwear are not taxed, though accessories, protective equipment, sports equipment, and costumes are typically taxable. New York exempts clothing items under $110 per item, while items over $110 are taxable. Massachusetts exempts clothing under $175 per item.

Several other states exempt clothing during specific periods known as sales tax holidays. Texas, Florida, Ohio, and about a dozen other states hold annual back-to-school tax holidays, typically in late July or August, where clothing under a price threshold ($100 to $200 depending on the state) is temporarily exempt. These holidays last 2 to 7 days and also often include school supplies and computers.

In all other states, clothing is taxable at the standard sales tax rate. The definition of "clothing" also varies, some states include fur clothing, some exclude it. Some states include protective work clothing, others tax it as safety equipment. If you sell clothing, verify the specific definitions and thresholds in each state where you collect tax.

Food and Groceries

Food taxability is one of the most complex areas of sales tax because states draw different lines between grocery food (often exempt or reduced-rate), prepared food (usually taxable), candy (taxable in many states with specific definitions), and dietary supplements (taxable in most states). The Streamlined Sales and Use Tax Agreement provides standardized definitions that member states follow, but non-member states use their own definitions.

Approximately 30 states exempt grocery food from sales tax or tax it at a reduced rate. However, the definition of "grocery food" excludes items like candy, soft drinks, and prepared food in most of these states. Candy is defined in SSUTA states as a product containing sugar as a primary ingredient that does not contain flour, meaning a chocolate bar without flour is candy (taxable), while a chocolate bar with flour is food (exempt). This distinction matters for ecommerce sellers of confections and snack products.

Prepared food is taxable in virtually every state, defined as food sold heated, combined with other ingredients by the seller, or sold with utensils. If you sell meal kits, ready-to-eat food products, or foods that require preparation but include multiple ingredients combined by you, the taxability depends on each state's specific prepared food definition.

Digital Products

Digital products including ebooks, digital music, streaming services, online courses, software downloads, digital art, and other electronically delivered products have widely varying taxability across states. Approximately 30 states tax some or all digital products, while the remaining sales tax states either exempt them or have not specifically addressed their taxability.

States that tax digital products generally treat them as taxable tangible personal property or have enacted specific digital goods taxation legislation. States like Washington, Connecticut, and Louisiana tax most digital products. States like California, Florida, and Missouri generally exempt digital products or tax only certain types. The rapid evolution of digital commerce means states are continuously updating their positions, and taxability rules that were accurate a year ago may have changed.

Dietary Supplements

Dietary supplements, including vitamins, minerals, protein powders, herbal supplements, and other products classified under FDA regulations as dietary supplements, are taxable in the majority of states. This is true even in states that exempt grocery food, because most states specifically exclude dietary supplements from their food exemptions. The distinction between a "food" and a "dietary supplement" hinges on the product's Supplement Facts label versus a Nutrition Facts label, as determined by FDA labeling requirements.

A product with a Supplement Facts panel is a dietary supplement and is taxable in most states. A product with a Nutrition Facts panel is a food product and may be exempt under the state's grocery exemption. This label-based distinction affects products like protein bars, meal replacement shakes, and fortified beverages that straddle the line between food and supplements.

Medical Devices and Supplies

Medical devices and supplies receive exemptions in many states, but the scope of the exemption varies dramatically. Some states exempt only prescription medical devices (devices requiring a doctor's prescription), while others exempt all medical devices meeting the FDA's definition. Over-the-counter medical supplies like bandages, thermometers, and first aid kits are taxable in most states. Durable medical equipment (wheelchairs, crutches, CPAP machines) is exempt in many states with a prescription requirement.

If you sell products that could be classified as medical devices or supplies, research each state's specific definitions and prescription requirements. The stakes for misclassification are high: charging tax on an exempt medical device frustrates customers, while failing to charge tax on a taxable product creates liability.

Software and SaaS

Software taxability depends on how it is delivered and used. Pre-loaded or physically delivered software (software on a disc or USB drive) is taxable as tangible personal property in virtually every state. Downloaded software is taxable in most states that have specifically addressed the question. Software as a Service (SaaS), where users access software through a browser without downloading it, has the most varied treatment, with approximately 20 states taxing SaaS and the remainder either exempting it or having no clear position.

States that tax SaaS include Texas, New York, Pennsylvania, Connecticut, and Ohio, among others. States that generally do not tax SaaS include California, Florida, Colorado, and Virginia. For ecommerce businesses selling software or SaaS products, this variability requires careful state-by-state analysis and accurate configuration in your tax software.

How to Handle Product Taxability on Your Store

If you sell products in any of the variable-taxability categories above, you need to assign the correct product tax category in your ecommerce platform or tax software. On Shopify, assign product tax categories under each product's settings. In TaxJar, map products to TaxJar's product tax codes. In Avalara, assign AvaTax tax codes with the most granular classification available.

For sellers using only their platform's default tax settings (no third-party tax service), verify the platform's handling of your specific product categories in each state. Default settings typically treat everything as "taxable tangible personal property," which overcollects tax in states where your products are exempt. This overcollection creates a compliance issue because you owe the excess tax to the state and the customer is entitled to a refund.

When in doubt about a product's taxability in a specific state, check the state's department of revenue website for taxability guidance. Many states publish product taxability charts or guides that list common product categories and their tax treatment. For edge cases that are not clearly addressed, some states offer private letter rulings where you can request an official determination of your product's taxability.