Which States Charge Sales Tax on Streaming Services?

The growth of streaming services has prompted questions about why subscription costs may be rising, with new taxes often being a contributing factor. Understanding which states apply these taxes and the mechanics behind them can provide clarity for consumers navigating their monthly bills.

Defining Taxable Streaming Services

For tax purposes, “streaming services” represent a broad category of digital products. While video platforms like Netflix and Hulu are the most common examples, the definition often extends to other forms of digital content, including audio streaming from Spotify, digital audiobooks, and online gaming platforms.

This classification falls under the wider umbrella of “digital goods and services,” a term state tax authorities use. The specific definitions can vary significantly from one jurisdiction to another, as some states have narrow laws for specific transmissions while others use broad language to cover most electronically accessed content.

The distinction between a downloaded product and a streamed service can also have tax implications. A one-time movie download might be treated as the sale of property in some states, whereas a subscription for unlimited streaming is often classified as a service.

States Imposing Sales Tax on Streaming

A significant number of states have extended their sales tax laws to include streaming services, although the application of these taxes varies. States like Pennsylvania and Washington apply their standard sales tax to streaming services, treating them similarly to other taxable goods. Other states use different tax structures. Florida, for example, applies a Communications Services Tax to streaming video and music services rather than a general sales tax.

The following table provides an overview of states that generally apply sales tax to streaming services.

| State | General Application of Sales Tax to Streaming |
| — | — |
| Alabama | Digital products are generally taxable. |
| Arizona | Streaming services are subject to sales tax. |
| Arkansas | Digital products, including streaming, are taxable. |
| Connecticut | Digital products are subject to sales tax. |
| Hawaii | General excise tax applies to most transactions, including streaming. |
| Idaho | Sales tax applies to digital products like streaming services. |
| Indiana | Streaming services are subject to sales tax. |
| Iowa | Sales tax applies to specified digital products. |
| Kentucky | Sales tax applies to digital property. |
| Louisiana | Sales tax applies to specified digital products. |
| Maryland | Digital products and streaming are generally taxable. |
| Minnesota | Sales tax is required on digital products, including streaming. |
| Mississippi | Sales tax applies to digital products. |
| Nebraska | Sales tax applies to sales of digital goods. |
| New Mexico | Gross receipts tax applies to most transactions, including streaming. |
| North Carolina | Sales tax applies to digital property. |
| Ohio | Sales tax applies to digital audio-visual and audio works. |
| Pennsylvania | Sales tax applies to digital products, including streaming. |
| Rhode Island | Specified digital products, including streaming, are taxable. |
| South Carolina | Streaming services are subject to sales tax. |
| South Dakota | Sales tax applies to digital products, including streaming. |
| Tennessee | Sales tax is required on digital products, including streaming. |
| Texas | Sales tax applies to data processing services, which can include streaming. |
| Utah | Sales tax is imposed on digital products. |
| Vermont | Sales tax applies to specified digital products. |
| Washington | Sales tax applies to digital automated services and streaming. |
| Washington D.C. | Sales tax applies to digital goods and streaming. |
| West Virginia | Sales tax applies to streaming services. |
| Wisconsin | Sales tax applies to specified digital goods. |
| Wyoming | Sales tax applies to specified digital products. |

How Streaming Taxes are Applied and Collected

The application of sales tax to streaming services is determined by the customer’s location. This is known as “sourcing,” and for digital services, it is based on the subscriber’s billing address. The streaming provider uses this address to determine the correct state and local tax rates to apply.

The responsibility for collecting and remitting the tax falls on the streaming service provider, not the individual consumer. Companies like Netflix and Spotify are registered with state tax authorities to collect sales tax, add it to the customer’s bill, and send the funds to the appropriate governments.

The total tax rate charged is a combination of the state’s base sales tax rate and any applicable local taxes from cities or counties. This is why a subscriber in one part of a state might pay a slightly different total tax amount than a subscriber in another city within the same state.

The Legal Foundation for Taxing Digital Services

The authority for states to tax streaming services is rooted in the legal concept of “nexus.” Nexus refers to the connection a business must have with a state before that state can require the business to collect its sales taxes. For many years, nexus required a physical presence, such as an office or warehouse.

This interpretation changed with the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. The court ruled that a business could establish nexus through a significant economic connection to a state, even without a physical presence. This “economic nexus” is defined by a certain amount of sales revenue or a specific number of transactions within the state.

The Wayfair decision paved the way for states to require out-of-state sellers, including providers of digital services, to collect and remit sales tax. Since the ruling, many states have enacted new laws or updated existing regulations to specifically tax digital goods and services.