Whatever you happen to be teaching, your students may have to pay some kind of sales or consumption tax when they purchase your course or program.
This article aims to help give you clarity on how tax is determined, in which countries it's applied, and what sites or software can help you handle it.
Tax factors for online courses
Is it pre-recorded or live?
Generally, live content isn't taxed like a digital product. But some places distinguish between streamed or downloaded, even though both are technically "delivered electronically."
Is it automated or interactive?
Generally, automated online courses are subject to digital tax, whereas courses with human interaction are not.
"Human interaction" can be defined as: interaction between other students, with an instructor, or if there's a live tutoring component (ie: an evaluation that's conducted by a human, rather than computer)
Is the student earning credits toward a formal educational program?
If a student is working toward a degree and the online course is contributing credits, then typically tax does not apply. Otherwise, an online course can be considered a digital service, rather than an educational service, and will be subject to tax.
Are there physical materials accompanying the course?
Books, CDs and other physical materials that are sold or delivered in tandem with the e-course can be taxed.
How specific countries tax online courses
The US sales tax system is notoriously complicated, and it's no different with online courses. Rules about distance learning or webinars vary from state to state. Taxability can hinge on any number of technicalities, such as whether the course is downloaded or just streamed. You'll need to check each state individually.
However, 24 states are part of the Streamlined Sales and Use Tax Agreement (SSUTA), which means they all share the same guidelines! That provides some much-needed consistency and simplicity across half of the country, but keep in mind that each state charges tax at its own rate.
The SSUTA guidelines say the following about online courses and webinars:
- NOT TAXED: "Live Digital Online Educational Services" are not taxed. So, if you present the course or seminar live in real time, then it's not subject to sales tax.
- NOT TAXED: "The participants are connected to other participants and presenters via Internet or other networks, allowing the participants to provide, receive, and discuss information together by live interaction, contemporaneous with the presentation."
- NOT TAXED: "The participant is evaluated by an instructor. ‘Evaluated by an instructor' does not include being graded by, scored by, or evaluated by a computer program or an interactive, automated method."
Your business need only meet one of the above conditions to be exempt from sales tax.
Essentially, if your course is pre-recorded, there's no way for the students to interact with each other during the course, and any evaluations are automatic — then it is subject to sales tax in the SSUTA states.
Fortunately, the EU rules are uniform across all 28 countries! Though the language is still pretty dense. Here it is from the horse's mouth.
"Automated distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention, including virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and student... [Courses with] workbooks completed by pupils online and marked in an automated fashion without human intervention." -- EU explanatory notes
Right... Basically, the EU VAT guidelines for online courses are very similar to those of the SSUTA:
- NOT SUBJECT TO DIGITAL TAX: Live courses or webinars.*
- NOT SUBJECT TO DIGITAL TAX: Any online courses that earn educational credit for the student toward some kind of degree.
- TAXED: automatic, delivered electronically, and no human interaction.
In cases where VAT does apply, you must charge the VAT digital tax rate of the country where your customer lives. For full guidelines on how to handle EU taxes for your online course, please check with your tax advisor.
*Live webinars may be subject to standard VAT rules for educational materials, rather than the rules for digital products. To be sure, please check with your tax advisor!
Australia and New Zealand
When it comes to online courses, the GST laws in Australia and New Zealand are broad (and pretty vague in comparison to the US or EU). There are no nuances or caveats. The ATO website states that GST applies to "webinars or distance learning courses" — that's it.
So, GST effectively applies to any kind of online course, regardless of whether it's live or pre-recorded, whether there's any human interaction.
However, Australia and New Zealand have sales thresholds for GST, meaning you don't need to charge tax on your courses unless you've surpassed a pretty significant annual total of sales in either country. In Australia, the threshold is A$75,000, and in New Zealand it's NZD $60,000.
How are you delivering your online course?
Of course, if you're selling from your own website, then you follow the tax guidelines as any independent business owner would do.
But if you use a distance learning platform or marketplace, then you should check what your tax responsibilities are. Some sites will charge, collect, and remit all consumption tax for you, while others might just cover certain steps or certain regions.