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What is the "Digital Goods Tax"?

Digital Goods Tax
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Michael Fleming
In most states, there is not a so-called “digital goods tax,” per se. But let us back up just a bit before we tackle this question. First, remember that most states impose sales and use tax on tangible personal property (TPP) by default, unless there is a specific exemption provided. Most states also tax at least some services. In contrast, most states do not tax real property sales or sales of intangible property. Those have been the general categories in sales and use tax law for many years. Now, with the emergence of electronic downloads of digital goods like software, apps, music, movies, games, and more, a new category emerges as well. Many state tax professionals refer to this new category as “digital goods” or “digital products.” A new category is necessary because these types of items do not fit nicely as tangible property or services. Of course, state governments have a natural inclination to impose taxes and these new digital goods are no exception. “Digital goods tax” then is more an industry term than a state statutory term. In fact, most states do not necessarily even have a category in their statutes such as digital goods. But that doesn’t mean states don’t tax them, and it doesn’t mean all states aren’t trying to tax them as we speak.

If you’d like a chart on which states exempt electronically delivered software or if you would like a chart of states that currently tax digital goods please let me know. My email is
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