Are you charging unnecessary sales taxes on your work?
As the business world continues to become more and more technology-driven, the differences between digital and physical products can sometimes be unclear. In the United States, legislation has been struggling to keep up with this change and, consequently, the laws can also seem to be rather unclear.
Before we dive in, to know whether or not you need to charge sales tax on your digital products, keep in mind that each state governs its own sales tax laws, and many are not up to date with the current state of e-commerce.
For example, in many states, the taxation of digital products is actually not formally regulated. On the other hand, in some states, laws that were originally written for catalog companies are still used to regulate digital content like book downloads or online music platforms.
With that being said, we recommend that you take the information in this post as a starting point and then discuss your sales tax reporting with a lawyer that specializes in e-commerce law.
As each state has their own sales tax regulations for digital products, we’ll be mostly focusing on our primary jurisdiction area of Florida in today’s article.
What is a digital product?
Considering the rapid developments in tech over the years, it’s somewhat hard to say.
We can say that digital products are those that are intangible, or nonphysical, which are digital or electronic in nature. These are goods that can be sent virtually, usually via email or download.
Some popular examples are: mobile applications, downloadable music, graphics, streaming media, webinars and digital subscriptions. It’s also important to note that sales tax does not always apply to all digital goods delivered through the Internet.
In terms of taxation, digital goods fall into six categories:
- Services for online data processing
- Audio files and music downloaded from the Internet
- Any electronic goods that have been downloaded
- Downloaded software
- Downloaded books
- Downloaded movies
How are digital goods taxed?
Sales tax collection requires a license, but not having one does not exempt you from not doing so.
Your responsibility as a business owner is to collect sales taxes in the states in which your business operates, even if you’re not physically located there or if you have affiliates selling your products in those states. You might also be required to prove your place of residence, no matter if it’s temporary.
Are electronically delivered products taxable in Florida?
In Florida, the sale of digital products is tax-free given that items sold in digital form aren’t classified as tangible personal property. In other words, services and products are not taxable if all of the goods are delivered digitally.
However, if an item is sold as a tangible product, sales tax will generally apply to the entire transaction. This means that if the product is delivered on a physical item, for example a USB or a CD, it automatically becomes taxable. As a result, the entire transaction, even the services provided, would then be subject to sales tax.
If You Need a Consulting Regarding Taxes on Digital Products, Sanchelima & Associates Can Help
Sanchelima & Associates, P.A. is one of the leading intellectual property law firms in South Florida. With over 40 years of experience, we have represented the IP interests of a wide array of businesses in the US and abroad, including Fortune 500 companies. Whether you need a consultation or prosecution of a patent, trademark, or copyright, we can protect your business’s interests.
Contact us to book your consultation!