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So, you’ve created a fabulous online course, which you sell as part of a digital package. Well done – they can be an extremely profitable income stream, and I’m all about the multiple income streams as a freelancer. However, there is one more not-insignificant thing you need to consider: does it comply with US sales tax regulations?
You are probably sitting there frantically trying to think about what that means. Don’t worry too much though, because the principle is pretty simple: out-of-state sellers may now be held responsible for collecting and paying sales tax anywhere. It all started off in South Dakota, with the Wayfair sales tax case, but now it covers more than 30 states. Basically, if you sell something in any of these states – whether it a physical product or a digital product that qualifies – you are responsible for collecting and paying the sales tax, even if you are not based in that state.
Is your online course taxable?
Generally, an online course is considered taxable if it’s pre-recorded, automated, or includes downloadable materials, although each state has its own rules and guidelines. Remember that in the US, sales tax is governed at a state level. There is no national sales tax law.
Remember that in the US, sales tax is governed at a state level. There is no national sales tax law. Click To Tweet
However, the Streamlined Sales and Use Tax Agreement (SSUTA) aims to standardize the US sales tax policy as much as possible, and most states have signed up to this, thankfully.
The SSUTA states that, when it comes to online courses and webinars, the following determines whether it is taxable or not.
- Is the course or webinar presented in ‘real-time’? If it is, it is considered as live digital educational services and not classed as taxable.
- Can the participants communicate with you or with each other in real-time, during the course? If they can, then it is not taxed.
- Are the participants evaluated by an actual human, as opposed to AI bots or computer software? If they are, the course can’t be taxed.
So, to reiterate – if it is pre-recorded, and if there is no way for the students to interact with you or each other during the course, and if students are evaluated by something other than a human being— then your course is subject to sales tax in the states that have adopted the SSUTA policy?
What if you do have to pay sales tax?
Each state has it’s own form and schedule when it comes to sales tax filing, and it is important that you keep on top of them all, or hire an accountant to do so, and submit your taxes to the appropriate states in a timely manner. Making mistakes such as failing to prepay when required, paying the wrong jurisdiction or paying late can increase your chances of being audited, and that’s going to give you a whole heap of extra hassle and work, that as a small-biz owner, you just don’t need.