If you're launching a digital subscription or membership product, sales tax can feel complicated. The good news: there are clear principles you can use to figure out your obligations.
Quick summary
Sales tax on digital subscriptions depends on three things:
Product type. How your subscription is classified (digital good vs. service) affects taxability.
Customer location. Sales tax rules vary state by state, and sometimes locally.
Nexus. Your business's physical or economic presence in a state determines whether you're obligated to collect there.
Digital product classification
Digital subscriptions can include text, audio, video, PDFs, courses, or membership content. Whether it's taxable often depends on whether the product is treated as a digital good or as a service in each state.
In general, subscriptions that provide access to digital content (whether downloadable or streamed) may be subject to sales tax. Examples include courses delivered through platforms like Kajabi, online membership communities, and software-as-a-service in some states.
State-specific rules
Sales tax laws are not uniform across the United States. Some states (like New York and Texas) have specific guidelines for digital products. Others may exempt digital products entirely.
To know what applies to you:
Identify where your customers are located.
Look up the digital product taxability rules in those states.
Note that local jurisdictions sometimes layer additional rules on top.
Nexus and tax obligations
You're only required to collect sales tax in states where you have nexus. Nexus can be established two ways:
Physical presence. Office, warehouse, employees, or inventory in a state.
Economic presence. Meeting a state's sales threshold, even without a physical footprint.
Once you have nexus in a state, you need to register for a sales tax permit and start collecting from customers there.
We can help
Sales tax for digital subscriptions can be complicated, especially when your product mix or customer base spans multiple states. If you have questions about your specific situation, reach out at [email protected].
Disclaimer
This article is a general overview. It is not tax or legal advice. Sales tax rules change frequently and vary by product type and state. Please consult a qualified sales tax professional before making decisions about taxability.