Introduction
Digital products ebooks, templates, licenses are booming on Amazon. But many digital creators don’t realize they may be responsible for collecting sales tax, depending on what they sell and where they sell it.
In 2025, state tax authorities are actively auditing digital sellers, especially those using Amazon’s self-fulfillment model.
Sales Tax Laws for Digital Sellers
- IRS handles income tax, not sales tax. But states regulate sales tax on digital goods
- Over 30 states tax digital products (eBooks, software, audio files)
- Marketplace Facilitator Laws often apply to Amazon but not always for digital downloads
- Economic nexus thresholds trigger sales tax registration in multiple states
IRS and State Obligations to Understand
- IRS Forms:
- Schedule C (Form 1040): Report business income from digital sales
- Form 1099-K: Issued by Amazon for gross payments
- Form 1040-ES: Make quarterly estimated tax payments
- State:
- Register for sales tax where required
- File monthly/quarterly returns depending on state thresholds
Example: Digital Seller Facing State Sales Tax Audit
Seller: Adam sells downloadable language guides through Amazon.
- Revenue: $75,000
- Amazon collected sales tax in most states except where Adam fulfilled sales directly
- Outcome: California sales tax audit due to uncollected tax on $18,000 in direct sales
- Issue: Assumed Amazon handled all tax, ignored self-fulfilled digital orders
Step-by-Step Sales Tax Compliance Plan
Review State Laws Where You Have Customers
- Check if your digital products are taxable
- Look at economic nexus thresholds ($100K or 200 transactions)
Understand Marketplace Facilitator Coverage
- Amazon handles sales tax on its platform for most physical products
- Digital products may be excluded in some states
Register in States Where Required
- Use a tool like TaxJar or Avalara to automate this
- File sales tax returns monthly or quarterly
Keep Digital Order Reports Organized
- Track revenue by product and state
- Store payment reports from Amazon and additional platforms
Don’t Deduct Collected Sales Tax
- It’s not a business expense
- Report income exclusive of collected tax on Schedule C
Conclusion
Selling digital goods on Amazon might seem hands-off but sales tax rules say otherwise. In 2025, make sure your downloads don’t lead to state audits. A clear understanding of digital tax law is your best protection.
Call to Action
Selling digital products on Amazon?
Schedule a meeting with Anshul Goyal, CPA EA FCA, a U.S. Certified Public Accountant, IRS Enrolled Agent, and e-commerce expert who guides digital creators through sales tax compliance.
- Schedule: https://calendly.com/anshulcpa/
- Email: anshul@kkca.io
- Website: www.kkca.io
About Our CPA
Anshul Goyal, CPA EA FCA, specializes in U.S. digital business taxation and IRS/state compliance. With 2,000+ clients served, he’s saved digital creators millions in unnecessary tax and audit penalties.
Disclaimer
This blog is for educational use only. It is not intended as legal or tax advice. Contact a qualified professional for help with your digital product tax compliance.
FAQs
1. Do I need to charge sales tax for Amazon digital products?
It depends on the state and whether Amazon collects on your behalf. Not all digital products are exempt.
2. What is a Marketplace Facilitator?
It’s a platform (like Amazon) that collects/remits sales tax on behalf of sellers, but may exclude digital items.
3. How do I know if a state taxes digital products?
Check the Department of Revenue website or use a tool like Avalara.
4. Are digital templates taxable?
In many states, yes. It depends on how the digital product is classified.
5. How do I report income from digital sales?
Report gross income on Schedule C and exclude sales tax collected.