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Lawmakers weigh taxing digital goods as retailers, NCSL outline options and risks
Summary
NCSL and retail representatives briefed the committee on taxing digital goods and services, noting inconsistent state rules, tradeoffs between simplicity and coverage, and arguments that taxing downloads and subscriptions would level the playing field for brick-and-mortar retailers.
The committee heard two presentations on digital goods taxation and state options on April 1, 2026.
Andrea Jimenez, a policy specialist with the National Conference of State Legislatures, told the panel that states vary widely in how they treat pre-written and custom software, streaming and other electronically delivered products, and that delivery method (download vs. stream) and ownership rights affect taxability. "There's really no uniformity in the treatment of digital goods and services," Jimenez said, and that statutory language dating from earlier decades often fails to capture modern cloud-based models.
Jimenez recommended clear statutory definitions and urged states to assess the administrative effects of expanding tax bases, particularly on business inputs that could increase costs for in-state firms.
Brian Walker of the Retail Association of Nevada argued for modernization to avoid disadvantaging local retailers, saying the tax code currently "taxes the weight of paper and subsidizes a digital PDF." He told the committee an updated base would reduce the main-street penalty and could allow lower rates while broadening the taxed base. "We are effectively taxing physical tools for education while giving digital versions a free pass," Walker said.
Members questioned how to treat hybrid products (bundles of goods and services) and subscription models sold by platforms, and they asked for examples of how states implement the Streamlined Sales Tax'bundle rule so the committee can distinguish taxable bundles from untaxed services.
Jimenez and Walker both urged careful drafting to avoid taxing business inputs or imposing unintended burdens on local firms. Jimenez noted some states recently clarified or expanded digital-tax definitions (examples cited included legislative changes in Louisiana, Maryland and Washington) and recommended early engagement with business stakeholders to identify administrability issues and potential legal risks.
The committee asked staff to gather examples of digital-transaction models (including chapter-by-chapter paid "serial" content and AI-generated audio or text products) and to compile how other states tax subscriptions, bundled transactions and software as a service for the committee's next discussion.
