As of February 7, 2024, Washington State has provided guidance on the taxability of live online classes. Classes that offer real-time interaction between the presenter and participants are subject to Washington’s business and occupation (B&O) tax under the service and other activities classification, but they are not subject to the retail sales tax. This interaction must be an integral part of the live class, not merely an option to ask questions through a chat room.
Conversely, online classes that do not allow for real-time interaction are subject to both retail B&O tax and retail sales tax. This distinction means that prerecorded classes or those with interaction limited to chat rooms are treated differently for sales tax purposes.
For example, a fitness studio offering live, interactive classes via two-way video and audio must report the income under the service B&O tax, exempt from retail sales tax. However, a cooking class live-streamed without real-time interaction must report income under retailing B&O tax and collect retail sales tax.
This clarification ensures that businesses can accurately report taxes based on the nature of their online instructional services. For more detailed examples and guidance, please refer to Washington State’s tax documentation. (Washington Department of Revenue, WA-Notice, February 12, 2024)