Tax Guide for Retailers and Purchasers of Digital Products
Definitions
Digital product
A digital product is a prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely.
Digital products include:
- Prewritten computer software transferred on tangible storage media
- Prewritten computer software transferred electronically
- Prewritten computer software accessed remotely
- Software as a service (SaaS) involving the right to access and use the provider's prewritten computer software running on a cloud infrastructure or the right to access that prewritten computer software from various client devices through either a thin client interface, including a web browser, or a program interface
Digital products do NOT include any of the following:
Digital assets
Any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology, as specified by the United States Secretary of the Treasury, such as cryptocurrency or other non-fungible digital assets as specified by the Secretary of the Treasury of the United States.
Digital audio work
A work that results from the fixation of a series of musical, spoken, or other sounds, including a ringtone, spoken word audio, audio books, or music, that is transferred electronically, or accessed remotely.
Digital audiovisual work
A series of related images that when shown in succession impart an impression of motion, together with accompanying sounds, if any, that are transferred electronically or accessed remotely, such as movies and videos with sound.
Digital book
A work that is generally recognized in the ordinary and usual sense as a book that is transferred electronically or accessed remotely, such as electronic books.
Digital infrastructure
A cloud-based service provided remotely that allows a user to create, deploy, scale, or run the user's own computer software on the service provider's digital platform without managing, operating, or maintaining the user's own infrastructure, including any hardware, software, networks, and facilities that are required to allow the user to create, deploy, scale, or run the user's own computer software, required to complete the task. Examples include cloud-based Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) which allow customers to create, deploy, or run their own software application.
Digital video game product
An electronic, interactive game played for entertainment purposes by manipulating an input device to produce visual feedback on a screen or an in-game purchase, that is transferred electronically or accessed remotely, such as a digitally downloadable game playable on a video game console or on a computer for entertainment purposes.
A digital video game product used for educational, or training purposes is not considered used for entertainment purposes.
Digital visual work
Artwork created by using computer hardware and software processes which results in artwork in a digital format that is transferred electronically or accessed remotely, such as computer-generated artwork.
Other key legal definitions
Accessed remotely: To have accessed for consideration by use of a digital code, password, or other means, prewritten computer software that resides on the vendor's server or the server of a third party.
Computer: An electronic device, including word processing equipment, that is programmable, includes a processor (CPU) and internal memory.
Computer software: A set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.
Custom computer software: Computer software prepared to the special order of a single customer and includes those services represented by separately stated charges for modifications to existing prewritten computer software that are prepared to the special order of the customer. Custom computer software does not include prewritten computer software that is held or existing for general or repeated sale or lease, even if the prewritten computer software was initially developed on a custom basis or for in-house use. Modification to existing prewritten computer software to meet the customer's needs is custom computer software only to the extent of the modification.
Prewritten computer software: Computer software that is held or existing for general or repeated sale or lease, even if the prewritten software was initially developed on a custom basis or for in-house use, including the combination of two or more prewritten programs.
Tangible Personal Property: Personal property that can be seen, weighed, measured, felt, touched, or is in any other manner perceptible to the senses. Effective January 1, 2027, Senate Bill 122 expands the definition of tangible personal property to include a digital product and any copyright or patent interests associated with it.
Tangible storage media: Any tangible device or material capable of storing a digital product, including, but not limited to, any internal or external drive, disk, memory card, or other item capable of storing a digital product.
Transferred electronically: Obtained by the purchaser, by means other than tangible storage media, in a manner that allows the purchaser to open, view, access, download, copy, possess, store, manipulate, update, or otherwise use the digital product.