Quick answer
Sales tax on digital subscriptions depends on where the buyer is located and how the state classifies the product or service. After the U.S. Supreme Court decision in South Dakota v. Wayfair (2018), states can require remote sellers to collect sales tax, but each jurisdiction still sets its own rules for digital goods and services. Businesses that sell subscriptions across state lines must evaluate taxability, economic nexus, and marketplace-facilitator laws to determine collection and remittance responsibilities.
Background / Why this matters
Digital sales grew rapidly in the 2010s, and states moved to capture revenue they were missing under older rules that focused on physical goods. The 2018 Wayfair decision removed the physical-presence requirement for sales-tax nexus and opened the door for states to require collection from remote sellers. Since then, many states have revised statutes or issued guidance to address streaming services, digital downloads, digital audio books, and software-as-a-service (SaaS).
In my 15 years working with small businesses and software providers, I’ve seen recurring compliance gaps: sellers assume a product is exempt because it’s “not tangible,” or they rely on a single-state view of taxability and miss economic nexus in other states. The result can be unexpected liabilities, penalties, and the need to change pricing mid-year.
Authoritative sources: the Wayfair decision (South Dakota v. Wayfair, 138 S. Ct. 2080 (2018)); state Department of Revenue (DOR) guidance; and tax-policy organizations such as the Tax Foundation and Tax Policy Center. For state-specific rules, always check the relevant state DOR site.
How it works: core concepts
- Taxability: States define what is “tangible personal property,” “prewritten software,” “digital product,” or a “service.” That classification determines whether the sale is taxable. Some states tax streaming and downloads; others do not.
- Nexus (economic and physical): After Wayfair, states use economic thresholds (commonly $100,000 in sales or 200 transactions) to require remote sellers to register and collect tax. Thresholds vary—confirm each state’s rule.
- Sourcing: Sales tax is sourced to the purchaser’s location in most states, so sellers must determine the correct jurisdiction to charge (state + local rates).
- Marketplace facilitator rules: Many states require marketplace platforms (e.g., app stores, third-party marketplaces) to collect and remit tax on behalf of sellers.
- Filing and remittance: Registered sellers file periodic returns and remit tax to the state; the filing frequency depends on the state and the amount of tax collected.
See FinHelp resources for more on nexus and platforms: “State Sales Tax Nexus: When Remote Sales Require Registration” and “Marketplace Facilitator Rules: Who Collects and Remits Sales Tax?” (internal links).
Typical examples (illustrative)
- A U.S. streaming service selling subscriptions nationwide may be taxable in states that specifically tax digital audio/video and/or digital downloads; in others the service may be exempt.
- A SaaS provider often encounters mixed treatment: some states treat SaaS as taxable “taxable service” or “prewritten software delivered electronically,” others treat it as nontaxable service. Multistate registration is common.
- A consumer who moves from a no-sales-tax state (e.g., Oregon) to a state that taxes digital subscriptions will see a change in the final price for recurring services.
Note: exact taxability for specific products and states changes frequently. Use state DOR guidance and professional advice for definitive determination.
Who is affected
- Consumers: final price for subscriptions can include sales tax depending on their state and locality.
- Businesses (subscription sellers): Must determine where they have nexus, whether their product is taxable, register with each state, collect the right rate, and file returns.
- Marketplaces and platforms: Many states place collection responsibility on marketplace facilitators.
Professional tips and practical steps
- Map your customers. Maintain a rolling report of where subscribers are located and the revenue per state. This is the first step to determining economic nexus exposure.
- Confirm product classification. Read state DOR rulings or private-letter decisions where available. When in doubt, document the analysis and conservative positions.
- Watch nexus thresholds and look-back periods. Many states measure sales by calendar year; others use trailing 12 months. Confirm effective dates and look-back rules.
- Use automated tax tools. Sales-tax engines (Avalara, TaxJar, Sovos) can help calculate rates by jurisdiction and manage filings, but you still need to set correct product tax codes.
- Account for exemptions and credits. Some states offer partial exemptions (educational, nonprofit, government) — track customer status and supporting documentation.
- Review marketplace rules. If you sell through a marketplace, verify whether the marketplace collects tax or whether you must.
- Keep good records. Retain invoices, exemption certificates, and nexus analyses for seven years or according to state audit windows.
- Consult a CPA or state tax attorney for large exposures or audit notices.
Representative state table (selected states)
Note: this is representative, not exhaustive. Laws change; always confirm with the state DOR link provided.
| State | Typical Position (2025) | Notes / Action |
|---|---|---|
| California | Varies by product; many digital downloads/charges may be taxable or taxable when bundled with taxable tangible goods | Check CA DOR for “digital goods” guidance; sourcing to purchaser’s location |
| Texas | Often taxable for digital products and certain software | Texas taxes some digital goods and data processing; verify SaaS treatment with Texas Comptroller |
| New York | Varies: prewritten software and some digital products are often taxable | NYS DOR guidance clarifies downloadable software vs. streaming |
| Florida | Varies by service; many digital services are taxable when specifically enumerated | Review Florida DOR notices for digital and communications services |
| Washington | Broad taxation of digital goods; many cloud services and digital products are taxable | Washington has a wide sales tax base for digital products |
| Oregon | Not subject to state sales tax | No state sales tax; localities do not impose retail sales tax either |
| Delaware | No state sales tax | Businesses may still have other business taxes |
| Vermont | Mixed; some digital products taxable, others exempt | Check Vermont DOR rulings |
| New Jersey | Often taxes digital downloads and certain digital products | NJ DOR has guidance on digital goods and services |
| Massachusetts | Varies by classification; taxable if treated as tangible personal property or taxable service | Massachusetts DOR guidance required |
Full, state-by-state guidance should be pulled from the applicable state DOR website or a current multistate resource.
Common mistakes and misconceptions
- Assuming “digital” means “exempt”: States define taxability by statute or administrative rules. “Digital” does not automatically mean non-taxable.
- Ignoring local rates: When a state allows local-option sales taxes, the purchaser’s locality determines the total rate.
- Overreliance on a vendor: Tax engines are tools; you still own the compliance decision and must set appropriate product taxability codes.
- Missing marketplace rules: Sellers who assume marketplaces are collecting tax may be surprised—confirm platform-level tax collection.
FAQs
Q: Are subscription fees taxed the same as one-time digital purchases?
A: Not always. Some states tax subscriptions differently (treating the recurring charge as a taxable sale of a service) while others focus on the underlying product (download vs. streaming). Determine taxability based on state law and product characterization.
Q: What are common nexus thresholds after Wayfair?
A: Many states adopted economic thresholds such as $100,000 in sales or 200 transactions, but thresholds, look-back periods, and effective dates vary. Always check the individual state’s statute or DOR guidance.
Q: Who pays if sales tax was not collected?
A: Legal liability can fall on the seller to remit uncollected tax, though states may pursue collection, penalties, and interest. In some cases, marketplace rules shift liability. Consult counsel if you find uncollected tax exposure.
Audit risk and recordkeeping
States have increased audits of remote sellers after Wayfair. Keep clear records (sales by state, exemption certificates, marketplace seller reports) and maintain a documented compliance process. If audited, produce nexus analyses, registration records, and collection histories.
Internal links (FinHelp)
- For nexus and registration basics, see our guide: Multi-State Sales Tax Nexus: Rules for Remote Sellers (https://finhelp.io/glossary/multi-state-sales-tax-nexus-rules-for-remote-sellers/).
- For SaaS vendors, see Multistate Sales Tax Essentials for SaaS and Digital Service Providers (https://finhelp.io/glossary/multistate-sales-tax-essentials-for-saas-and-digital-service-providers/).
- For marketplace questions, review Marketplace Facilitator Rules: Who Collects and Remits Sales Tax? (https://finhelp.io/glossary/marketplace-facilitator-rules-who-collects-and-remits-sales-tax/).
Next steps for businesses
- Run a customer-location snapshot to identify states where you may exceed nexus thresholds. 2. Categorize each product and map to state tax codes. 3. Register where required, or confirm marketplace collection. 4. Implement tax calculation and filings. 5. Re-check quarterly as your subscriber base changes.
Professional disclaimer
This article is educational and not legal or tax advice. Rules for sales and use tax are set by states and can change; consider consulting a CPA or state tax attorney for advice tailored to your situation.
Sources and further reading
- South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
- State Department of Revenue websites (search your state + “digital goods” or “sales tax”).
- Tax Foundation and Tax Policy Center summaries of post-Wayfair developments.
- Streamlined Sales Tax Governing Board (sstgb.org) for multistate coordination efforts.
