Arkansas Ruling Addresses Sales Taxation of Digital Products

May 28, 2020

Over half of the states impose sales tax on digital products, and this Arkansas revenue legal counsel opinion explains the application of the state’s rules to certain digital products.

By: Kristen Mantilla, SALT Associate

Technology has changed the way that consumers purchase goods and services. We said farewell to Tower Records, Blockbuster, and to some extent bookstores; we welcomed Apple Music and Spotify, Amazon Prime and Netflix, and the Kindle. The impact on sales tax revenue was immediate. Consumers purchase less “tangible personal property,” but the new digital purchases were not subject to sales tax.  As a result, more than half of states enacted sales tax legislation to require a sales tax on digital goods.  On March 16, 2020, the Arkansas Department of Finance and Administration (“DFA”) issued a Revenue Legal Counsel Opinion addressing the taxability of  certain digital products: (i) digital planners, (ii) digital worksheets, and (iii) education video courses on time management.[1]

Arkansas taxes sales on “specified digital products” transferred electronically to an end user to whom the seller grants either permanent use or less than permanent use, regardless of whether the use is conditioned on continued payments (i.e., subscriptions).[2] Specified digital products include digital audio works, digital audio-visual works, and digital books.[3]

  • Digital audio works – works that result from the fixation of a series of musical, spoken, or other sounds, including ringtones.[4]
  • Digital audio-visual works – a series of related images that, when shown in succession, impart an impression of motion, together with accompanying sounds, if any.[5]
  • Digital books – works that are generally recognized in the ordinary and usual sense as “books.”[6]

Based on these rules, the state addressed each of the three items raised in the ruling request.

Digital planners, similar to hard-copy planners, are a form of written work that consists of pages that are digitally bounded together in a consecutive succession and order (i.e. – units of time) that is essential to its purpose. Therefore, the DFA viewed digital planners as a taxable digital book.

For a digital worksheet, the DFA concluded that its taxability depends on whether the worksheet consists of pages that are digitally bound together in a consecutive succession and order that is essential to its purpose. If so, then the digital worksheet would be viewed as a taxable digital book. However, if the succession and order of the worksheet pages are not essential to its overall purpose, then the worksheet would not be taxable.

Finally, the DFA ruled that the educational video courses on time management are taxable as digital audio-visual works, because each video consists of a series of related images that, when shown in succession, create an “impression of motion” (with accompanying sounds in this case).

The DFA also noted that there is a chance these products could create a bundled transaction of taxable and non-taxable items if they are sold for one non-itemized price, in which case the entire transaction is taxable. If they are separately stated, only the items that are taxable would need to be taxed.

As technology continues to change the way that consumers purchase goods and services, sellers need to recognize the effect on sales tax. States are increasingly aware of the budgetary impact and are constantly enacting new legislation and/or issuing new guidance in order to expand the sales tax base.

Aprio’s SALT team understands how these new taxability rules will affect your sales tax obligations, including the new economic nexus rules, and can assist your business to ensure that you remain in compliance and do not incur unexpected sales tax liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Kristen Mantilla, SALT  Associate at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the May 2020 SALT Newsletter.

[1] Arkansas Revenue Legal Counsel Opinion No. 20180921, March 16, 2020.

[2] Ark. Code Ann. § 26-52-301(1)(B).

[3] Ark. Code Ann. § 26-52-103(29).

[4] Ark. Code Ann. § 26-52-103(9).

[5] Ark. Code Ann. § 26-52-103(10).

[6] Ark. Code Ann. § 26-52-103(11).

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