How to tax an ebook – Wacky Tax Wednesday

August 9 is National Book Lovers Day. This is different from World Book and Copyright Day, which UNESCO created in 1995 “to pay a world-wide tribute to books and authors.” National Book Lovers Day is an unofficial holiday that encourages us to curl up in our favorite reading places and “read the day away.” I’m in.

Book Lovers Day doesn’t discriminate; it encourages reading all types of genres in all kinds of formats: fiction or nonfiction, ebook or paper book. Of course, there is also encouragement to consume: “Buy the book lover in your life gifts only a book lover would appreciate.” Some type of book jumps to mind.

Books are subject to sales and use tax in the District of Columbia and all 45 states with a sales tax. (They’re also subject to local sales tax in some parts of Alaska). At least books with paper pages are. The taxability of digital books is much less straightforward.

Though sales of ebooks peaked in 2011, states have been slow to adapt their sales tax laws to them. As tangible personal property, ereaders like Kindles and Nooks are clearly subject to sales tax. Yet the digital books we read on them aren’t exactly tangible, and as a result, many states have wrestled with whether to tax them.

In fact, more than a dozen states still do not specifically define digital goods such as ebooks in their tax laws. These include Alabama, Arizona, Colorado, Florida, Hawaii, Idaho, Maryland, Massachusetts, Missouri, New Mexico, South Carolina, and Virginia. While the departments of revenue in some of these states have addressed the taxability of certain digital goods, taxability remains unclear in others.

This is changing, albeit slowly.

States that apply tax to sales of electronic books include:

• Connecticut (if no tangible personal property is included in the transaction, they are taxed at 1 percent)
• Indiana
• Kentucky
• Louisiana
• Maine
• Minnesota
• Mississippi
• Nebraska
• New Jersey
• North Carolina
• Ohio
• Pennsylvania
• South Dakota
• Texas
• Utah
• Washington
• Wisconsin
• Wyoming

States that exempt sales of ebooks include:

• California
• Georgia
• Iowa (legislation that would tax them was considered in 2016 but not adopted)
• New York
• Rhode Island

• Digital books are subject to sales tax in Arkansas starting January 1, 2018.

The global trend is moving toward taxing digital goods (like ebooks) and services. However, as always with transaction tax, change will come in fits and starts. Companies in the business of selling these products are advised to keep a finger on the pulse of all states with unclear policies.

Obtain up-to-date sales tax news in the Avalara Sales Tax Newsletter. But on August 9, set all work aside and read a book.