Summary: Certain categories of products have special sales tax considerations because they are generally not taxable in each state. In this post, we’ve outlined the most common types of products where state-level exemptions might apply.
The purpose of this blog post is to provide insight into common types of products that may be exempt from sales tax in certain states.
- Does the business have sales tax nexus?
- Who are they selling the product to and for what purpose?
- What product is being sold?
In this post, we’ll be focusing on that third bullet point by sharing products that are frequently exempt from sales tax in certain states.
If you sell a product where you believe a sales tax exemption might apply, you’ll need to be sure that your product meets the state’s statutory requirements. This can be done through a product taxability study (which can be included as an add-on project as part of your Sales Tax Done-for-You Service).
Many of the state’s statutes are incredibly specific, and you should take special care to examine each state’s laws to ensure that your product or service qualifies for the exemption. While this can be a time and labor-intensive process, you’ll be glad you did it. You’ll be better off spending some money researching a state’s product taxability statutes than to find out down the road that your product didn’t qualify for an exemption. If you claim an exemption that you didn’t qualify for, you could have to pay a ton of money out-of-pocket during an audit. Not good!
Please note that while this list is fairly comprehensive, it is not exhaustive.
E-Commerce Products That May Be Exempt from Sales Tax in Certain States
- Digital Products
- Food and Beverage
- Marijuana and CBD (if prescribed)
- Medical Devices
- Women’s Hygiene Products
Software Products That May Be Exempt from Sales Tax in Certain States
- Computer Services
- Set-up Fees
- Internet Service Provider Fees
- Web Hosting
- Web Page Design
- Computer Software
- Canned Prewritten Software (check out sales tax guide on prewritten software here)
- Custom Software (check out our sales tax guide on custom software here)
- Software as a Service (SaaS) (check out our sales tax guide on software as a service here)
- Infrastructure as a Service (IaaS)
- Platform as a Service (PaaS)
- Digital Products
- Maintenance and Service Contracts
Other Products That May Be Exempt from Sales Tax in Certain States
- Environmental Conservation Products
- Hotels Charges and Purchases
- Leases and Rentals
- Machinery and Equipment
- Newspapers and Periodicals
- Training Seminars
- Travel Agents
- Vending Machines
Disclaimer: Nothing on this page should be considered tax or legal advice. Information provided on this page is general in nature and is provided without warranty.