Sales Tax to be Applied to Online Services

Beginning July 26, 2009, you will need to start paying closer attention to the services you use online. With the passage of Engrossed Substitute House Bill (ESHB) 2075, sales or use tax will be due on digital products ranging from downloaded music to streaming video.

The bill clarifies how taxes apply to products that exist only as computer bits and bytes. Specifically, it:

• Defines digital products as goods and services transferred electronically.
• Includes certain exemptions for businesses and end consumers.
• Requires sellers of digital products to electronically file their tax returns.
• Provides amnesty to those who didn’t collect or pay sales or use tax on digital products that were taxed before July 26, 2009.

What 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 applies sales or use tax to all digital products, regardless of how they are accessed (downloaded, streamed, subscription service, networking, etc.).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 bill also covers remote access software (e.g. application service providers), which is now subject to sales and use tax too. It does not matter if the purchaser obtains a permanent or nonpermanent right of use. If you have questions about what this bill applies to, how it will be enforced, what is exempt and more you can visit the Washington State Department of Revenue’s question and answer webpage.