Background and legal shift

The rules for taxing digital memberships changed sharply after the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), which let states require out‑of‑state sellers to collect sales tax based on economic presence rather than physical presence [SCOTUS, Wayfair (2018)]. Since then most states have adopted economic nexus thresholds (commonly a dollar-sales or transaction test) and many explicitly addressed digital goods and services.

Key concepts business owners must know

  • Product classification: States differ on whether a digital membership is treated as a taxable “digital good,” a taxed service, or a nontaxable subscription. Classification drives whether tax applies and what rate to charge. See your state department of revenue for exact definitions.
  • Nexus: Economic nexus rules (sales or transactions thresholds) and physical presence determine where you must register and collect tax. Many states use thresholds like $100,000 in sales or 200 transactions, but amounts vary—verify each state’s rule before assuming coverage [TaxJar overview].
  • Sourcing rules: Some states tax based on purchaser location (destination-based) while others use seller location (origin-based) for sales tax. For digital memberships delivered remotely, destination sourcing is common.
  • Marketplace facilitator laws: Major platforms may be required to collect and remit tax for sales through their marketplace—check whether that applies to your distribution channel.

How to implement compliance (practical steps)

  1. Inventory and classify your offering: Document what customers receive (content, software access, streaming, downloads, bundled physical goods) and map how each state defines taxable digital products.
  2. Determine nexus per state: Track revenue and transaction counts by state. If you hit a state’s threshold, register for a sales tax permit with that state.
  3. Set sourcing and rates: Configure your checkout to apply destination-based tax where required and to use the correct state+local rates.
  4. Leverage automation: Use a reputable sales tax engine or accounting software to manage rate lookups, exemptions, filing schedules, and nexus monitoring.
  5. File and remit on schedule: Once registered, file returns and remit taxes per each state’s cadence. Keep records of exemptions and customer residency.

Real-world examples (high level)

  • New York and several other states tax certain digital products and subscriptions when state law or regulation lists them as taxable; the exact scope varies by product type.
  • Massachusetts historically treats many digital access services differently than tangible goods; always check current DOR guidance.
  • California’s approach focuses on whether a transaction is a sale of tangible personal property or a taxable service, which can affect bundled digital/physical offerings.

Because state taxability hinges on specific definitions and recent rule changes, use state DOR guidance or a tax research tool for your products.

Who is affected

Any business selling subscriptions or memberships that deliver digital content, streamed services, online courses, software access, or member portals to customers across state lines should evaluate state taxability and nexus. This includes SaaS companies, e‑learning platforms, membership sites, content creators, and multi‑location service providers.

Common mistakes to avoid

  • Assuming all digital products are tax‑free. Tax treatment is state‑specific and often nuanced.
  • Only collecting where you have a physical office. Economic nexus can create obligations without a physical presence.
  • Failing to track small transactions or pockets of revenue that push you over a state’s threshold.
  • Neglecting marketplace facilitator and marketplace seller rules that may shift collection responsibility.

Professional tips

  • Run a quarterly nexus report by state; thresholds and business patterns change.
  • Use a sales tax automation provider to reduce manual errors on rate calculation and filing.
  • Maintain clear product descriptions and bundle accounting to support tax positions in case of audit.

Useful internal guides

Frequently asked questions

  • Do I need to collect tax on every digital membership sale? Not necessarily—collecting depends on how each state classifies the membership and whether you meet that state’s nexus threshold.

  • Can a marketplace or platform collect on my behalf? Yes. Marketplace facilitator laws in many states require platforms to collect and remit sales tax for qualifying marketplace transactions.

  • What records should I keep? Maintain sales reports by location, exemption certificates, registration numbers, and audit trails for rate calculations and remittance.

Authoritative sources and further reading

  • South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018) (Supreme Court decision on economic nexus).
  • TaxJar — Sales tax guides and state rules (https://www.taxjar.com/) for state-by-state taxability summaries.
  • Streamlined Sales Tax (SST) and individual state Department of Revenue websites for official definitions and registration procedures.

Professional disclaimer

This article is educational and not a substitute for personalized tax advice. State tax law is fact‑specific and changes frequently—consult a qualified CPA or state tax counsel to confirm obligations for your exact products and sales patterns.

Sources cited: South Dakota v. Wayfair, Inc. (2018); TaxJar state guides; state department of revenue resources (individual state DOR sites).