Tax on digital products?

The digital products bills (ESHB 2075 & SHB 2620) clarify – http://dor.wa.gov – how taxes apply to products that exist only as computer bits and bytes.  Specifically, they:

  • Define digital products as goods and services transferred electronically.
  • Make the taxation of digital products technology-neutral.
  • Include certain exclusions and exemptions for businesses and end consumers.
  • Require sellers of digital products to electronically file their tax returns, as well as pay their taxes online.
  • Provide amnesty to those who didn’t collect or pay sales or use tax on digital goods that were taxed before the effective date of this act, and explains how a credit or refund of B&O tax paid in excess of the proper amount due works.

Which digital products are subject to tax?

While downloaded digital goods (music and movies, etc.) have always been subject to sales or use tax, ESHB 2075 and SHB 2620 apply sales or use tax to all digital products, regardless of how they are accessed (downloaded, streamed, subscription service, networking, etc.). (See exclusions from the definitions and exemptions from retail sales and use tax below)
Digital products subject to sales or use tax include:

  • Downloaded digital goods (music and movies, etc.)
  • Streamed and accessed digital goods
  • Digital automated services (DAS)

The bills also cover remote access software which is now subject to sales and use tax. It does not matter if the purchaser obtains a permanent or nonpermanent right of use.