Louisiana passed House Bill 8, which will go into effect January 1, 2025, and applies sales tax to previously untaxed digital goods. Downloaded digital goods including digital books, audio visual, audio, information services, and games were previously taxable. Items covered under the new tax law include digital audiovisual and audio works, digital books and games, digital periodicals regardless of the method of delivery or access. This now includes remotely accessed software known as SaaS. This also includes digital codes which give the user a code used to access or obtain any digital products purchased by a retailer for use of that retailer’s customers with an exception for gift cards or certificates which may be redeemable for items other than digital products. “Sale” or “use” of digital products is also defined in HB 8. A “sale” is the first act in Louisiana when a retail consumer views, accesses, downloads, or otherwise enjoys the product.
However, this new tax does not apply to everything—there are a few exclusions for tax software and digital products when certain conditions apply. Computer software or prewritten computer software access services, information services, and digital products may be tax exempt based on use. In order for this exemption to apply, the product must be exclusively for commercial use, must be used directly in the production of goods and/or services which are for sale to customers, and those goods/ services sold by the business must be subject to either sales and use tax or the insurance premium tax. Another exemption is extended for items that are created solely for the business needs of the person creating them and when those items are not the same type offered for sale. The final exemptions are for digital products purchased and used by FDIC insured financial institutions and licensed healthcare facilities and providers are long as the digital products themselves are used in relation to specific business purposes. It is not a sale if the item is offered for free, however, a transfer is not considered free if the product is bundled with taxable items (regardless of if the items are separately stated and/ or invoiced).
The definition of “use” is the first act in Louisiana when a retail consumer views, accesses, downloads, or otherwise enjoys the product, and does include access and use to services and information services which are in the possession of the dealer or a third party. Similar to sales tax, if the digital property is used in a way that it would have been exempted from sales tax, use tax will not be assessed on the item(s).
Retailers of digital goods in Louisiana will need to ensure they are correctly taxing these products in the new year or collecting the appropriate exemption certificates from clients. Businesses in Louisiana who use digital goods will also need to prepare exemption certificates for suppliers for those items that are exempt from this new tax. (Louisiana 2024 Third Extraordinary Session, House Bill No. 8, Enrolled Act No.10)