Digital Products Now Subject to PA Sales Tax Law

Do you buy digital products or services? If, like most of us, the answer is yes, Pennsylvania (and most other states) want their sales tax on the purchase.

Pennsylvania sales tax applies to the sale of “tangible personal property” (unless specifically exempted). That phrase usually means something that has form and shape; something you can touch and feel (and you can’t touch and feel digital products or services). However, Pennsylvania changed its sales tax law to include as part of (usually taxable) “tangible personal property” a list of purchases that are electronically or digitally delivered, streamed or accessed, whether bought singly or by subscription and including maintenance, updates and support.

Those taxable digital products include:

• E-books (like Kindle)
• Digital video (such as Netflix or Hulu)
• Digital audio that is downloaded or streamed (music, ringtones, podcasts, and audio books purchased from iTunes, Google Play and other services)
• Subscriptions to satellite radio and other streaming services
• Downloaded apps and games
• Add-ons to an app or game
• Subscriptions to online games, photographs, e-greeting cards, and canned software

Often the seller collects the sales tax, and that will become more common as the various states start requiring out of state sellers to collect Pennsylvania sales tax on sales to Pennsylvania customers. However, not all states have sales taxes, not all states require collecting sales tax on sales to customers outside the seller’s state, and states may exempt sellers that do a low-level of sales with Pennsylvania customers. If you buy digital products or services and the seller doesn’t collect Pennsylvania sales tax, you’re required by law to pay the 6% tax by reporting it on the “use tax” line on your Pennsylvania state income tax return.

If you have questions about your sales tax responsibility as a Pennsylvania seller or buyer of digital products or services, your Gross McGinley business services attorney can help with your questions.

Attorney Michael Henry provides tax and legal guidance to businesses and individuals throughout the Lehigh Valley.