A question came up in the Mac small business list and I’ve seen it asked several times over the years. I’ve had this question myself: do you have to charge sales tax for downloaded software like WebnoteHappy? The short answer: it depends.
From what I’ve read (and I’m no tax attorney either but I try to keep up on tax rulings), it really depends on where you actually sell from. I currently sell all my software through Kagi, who is selling from California, one of the states that doesn’t charge sales tax for prewritten software that is downloaded electronically. Note that there is one huge exception for Kagi – they are registered in Europe and collect VAT for all European customers.
Note that prewritten software is a key distinction. This is basically software that you write once and sell again and again.
So how do you find out if you need to charge sales tax?
Vertex Inc’s Tax Cybrary of Internet Tax is a good place to start. Look up your state and the part that says “Information/Software Purchased via Downloading from the Internet.”
Its a little more complicated than that though, because courts can issue rulings that can supercede these tax laws.
For example, I live in Virginia and a ruling in April 2005 clarified that if you sell prewritten software and you don’t ship anything (CD, docs, anything) and keep a record that the user is not entitled to anything physical (CD, docs, etc) then you don’t have to charge taxes on it because it is not tangible.
So – bottom line – if you’re not going through a reseller like Kagi or eSellerate, check with an attorney in your area.