Sales tax is not governed at the federal level, so each state can do what they want about it. Currently, 47 states impose a sales tax legislation and businesses have to analyse their activity in each one individually to understand their obligations.

Most states created their sales tax laws in the olden days, before Amazon, crypto and the multiverse. In fact, most legislation was written before the internet existed and in some states, the latest law pre-dates the computer! This means either states have had to update their legislation to govern the digital economy, or businesses have to analyse their tax obligations in the context of archaic laws.

The digital economy has made this even more complicated. It is now possible to sell millions of dollars of “product” across the US with no physical footprint. So-called Digital Products have created a big challenge for US states who want their piece of the pie, so most have updated their laws (or at least their interpretation thereof) to include virtual goods and services.

Therefore, even if you have no physical connection to a state, if local consumers download, subscribe to, purchase or access your digital products, you might have sales tax obligations. States have the option to include Digital Products in the economic nexus calculation, and at the time of writing, 35 of the 47 states who have sales tax has confirmed that some Digital Products are taxable and subject to nexus assessment.

A very complex and difficult product to deal with is “Audio-visual Digital Content” (we use this term to refer to things like videos, music and events that are made available online). The most difficult one to analyse is content streaming: consumers now pay to watch movies, concerts and even webinars online and therefore the tax man wants his share of that revenue.

Because of the way sales tax laws are written, the determining factor is often not the product itself, but how it is paid for and accessed by the user. Is the content streamed on-demand or live? Can the user download it or it is access in the Cloud? Do they subscribe to the content or pay for it once?

There are many more considerations, and there are 35 states (and counting) to consider.

At the time of writing, there are probably at least 20 states who would consider Streamed Content a taxable product. If you have customers in these states and your sales number create economic nexus, you will need to register and comply with the sale taw laws.

The point is, it’s hard. And once you have solved the mystery of whether your streamed product is taxable, there are at least 20 different sets of tax rules to understand and comply with. You’ll need some help.