Internet Sales (Publication 109)
Nontaxable Sales

Some Internet sales are not taxable

Common exempt transactions

Some of your Internet sales—including sales for resale, sales of cold food products, and sales delivered outside of California—may not be subject to California sales or use tax. Common exemptions are described in publication 73, Your California Seller's Permit. More detailed information is found in publication 61, Sales and Use Taxes: Tax Expenditures.

Products electronically transmitted to customers

Your sale of electronic data products such as software, data, digital books (eBooks), mobile applications, and digital images are generally not taxable when you transmit the data to your customer over the Internet. However, if as part of the sale, you provide your customer with a printed copy of the electronically transferred information or a backup data copy on a physical storage medium, such as a flash drive, your entire sale is usually taxable.

An eBook is an electronic version of a traditional print book that can be read by using a tablet computer or by using an eBook reader. Users can purchase an eBook on tangible media, such as CD or flash drive, but the most popular method of getting an eBook is to purchase a downloadable file of the eBook without purchasing any physical storage medium. A mobile application, also known as a "mobile app," is computer software designed for use on a smartphone or tablet computer. The transfer of a downloadable file such as an eBook or an "app" without purchasing any physical storage medium is not a taxable transaction.

If your company sells canned (noncustom) software programs to customers who download them from a server, those sales are generally not subject to tax. However, if you also provide your customers with a backup copy on a flash drive, the entire transaction is taxable. Similarly, if you transmit a stock (noncustom) database to your customers over the Internet and also provide a printed copy of the contents, the entire sale is subject to tax. For more information regarding the sale of computer programs and data processing services, you may obtain a copy of Regulation 1502, Computers, Programs, and Data Processing.