Before January 1, 2019, whether a digital good or service was subject to sales tax depended on various factors. To be subject to sales tax, a digital product had to constitute either tangible personal property or an enumerated service. Further, all products delivered electronically were exempt from sales tax.
It is important to note that in addition to this informal guidance, the Department will engage in administrative rule-making on these issues in the near future. This will include revision or deletion of existing rules and promulgation of new rules.
Taxation of Software has Changed
Before January 1, 2019, prewritten computer software was subject to sales tax if it was delivered via a disc or other tangible medium but exempt if delivered in an electronic form. Also exempt was the service of creating custom software.
Beginning January 1, 2019, prewritten computer software is subject to sales tax whether delivered or accessed in physical form (as tangible personal property) or electronically (as a specified digital product). In addition, custom software sold in either physical or electronic form is taxed in the same manner as prewritten computer software.
There are also two new exemptions that may be relevant to software purchases, discussed later in this guide.