Are e-books, self-study online courses, and instructor-critiqued virtual lessons subject to Colorado sales tax?

Plain-English summary

A Colorado company sells e-books (downloadable PDFs) and plans to add online courses (password-accessed written material and videos for self-study) and virtual lessons (the customer submits a video and pays an instructor to critique it with written comments and a video response). It asked whether it must collect sales tax on each. The Department split the three:

1. E-books — taxable. Colorado taxes tangible personal property, defined as "corporeal personal property." E-books "have a physical existence" — they aren't mere ideas; "particularly true because these books can be downloaded and printed." So e-book sales are taxable. The Department drew a sharp line to software: electronically transmitted computer software is not taxable (§ 39-26-102(15)(c)(I); FYI Sales 89), "[h]owever, this statute does not govern the sale of digital goods, such as electronically delivered books."

2. Online course (self-study) — taxable. Education and training are generally nontaxable services — but only where there's "some form of interaction between student and instructor." This course is "used for self-study" with no instructor access — "analogous to accessing textbooks, 'how-to' books or videos, or manuals." "Simply viewing or reading materials … does not constitute a course of instruction, tutoring or training as a service." Training materials — "books, videos, and manuals, including such items delivered electronically, digitally, or through any other medium — are tangible personal property." So the online course is the taxable sale of TPP. (Contrast: non-custom instructional DVDs are taxable goods; a school selling instruction is a nontaxable service.)

3. Virtual lessons — NOT taxable. These mix TPP (written comments, video response) with a service (the instructor's critique). The Department found the property "neither separable nor separated" from the service, "because without the tangible personal property, there is no means to convey the critique." Applying the true-object test, "the true object of the transaction is not the video and written comments themselves, but the critique." So virtual lessons are a nontaxable service, with the TPP incidental.

The dividing line across all three: passive materials you consume on your own = taxable goods; interactive, instructor-delivered critique = nontaxable service. Because this is a private letter ruling, it binds the Department only as to this taxpayer and these facts and cannot be relied on by anyone else.

What this means for you

Sellers of digital content and online education

Colorado treats digital goods like e-books as taxable tangible personal property — electronic delivery doesn't exempt them (unlike software). Self-study course content (videos, written materials, manuals) you sell for the buyer to consume on their own is likewise taxable, even delivered digitally. What flips a course to a nontaxable service is genuine interaction with an instructor — tutoring, critique, personal training. So how you design and describe the offering (passive library vs. interactive coaching) directly drives the tax result. Bundles where an instructor's critique is the true object, and any property is just the medium, lean nontaxable.

Customers buying digital courses and books

Expect Colorado sales tax on e-books and self-study course material; instructor-driven coaching/critique services generally aren't taxed.

Accountants and tax professionals

Digital-goods-as-corporeal-TPP holding (§ 39-26-102(15)), expressly distinguished from the electronically-delivered-software carve-out (§ 39-26-102(15)(c)(I)). Educational-service test requires student–instructor interaction (cf. FYI Sales 52; out-of-state authorities cited for instructional-video taxability). Virtual-lesson result rests on inseparability + true-object (Special Regulation 52, Service Enterprises). Compare CO GIL 17-013 (non-customized digital reports = taxable TPP) and GIL 17-012 (electronically delivered software ≠ TPP); this PLR is cross-referenced in CO GIL 17-002 (student learning materials).

Common questions

Q: Are e-books taxable in Colorado?
A: Yes. E-books are tangible personal property with a physical existence (they can be downloaded and printed), so their sale is taxable — even though they're delivered electronically.

Q: Is an online course taxable?
A: A self-study course — written material and videos with no instructor interaction — is taxable as a sale of training materials (tangible personal property), even delivered digitally.

Q: Why are virtual lessons not taxable?
A: Because the true object is the instructor's critique, a service. The video and written comments are inseparable from that service and merely the means of delivering it, so they're incidental.

Q: What's the key difference between a taxable course and a nontaxable lesson?
A: Interaction with an instructor. Passive, self-study materials are taxable goods; an interactive, instructor-delivered critique or tutoring is a nontaxable service.

Q: Isn't this like software, which isn't taxed?
A: No. The Department expressly distinguished electronically delivered software (not taxable) from digital goods like e-books (taxable). The software carve-out doesn't cover digital books.

Q: Can my business rely on this ruling?
A: No. A private letter ruling binds the Department only as to the taxpayer and facts it was issued to and cannot be relied upon by anyone else.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities and counties set their own rules — and some tax digital goods differently.

Citations and references

Statutes, rules, and references:
- § 39-26-104(1), § 39-26-202, C.R.S. (sales/use tax on tangible personal property)
- § 39-26-102(15), C.R.S. (tangible personal property is "corporeal personal property"; digital goods qualify)
- § 39-26-102(15)(c)(I), C.R.S. (electronically transmitted computer software is not taxable — distinguished from digital goods); FYI Sales 89
- 1 CCR 201-5, Special Regulation 52 (Service Enterprises); FYI Sales 52 (Service Enterprises)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-16-007.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

PLR-16-007

April 12, 2016
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: E-book, Online Courses, Virtual Lessons
Dear XXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXX ("Company") a request for a private letter
ruling to the Colorado Department of Revenue ("Department") pursuant to Department Rule
24-35-103.5. This letter is the Department's private letter ruling. This ruling is binding on
the Department to the extent set forth in Department Rule 24-35-103.5. This ruling cannot
be relied upon by any taxpayer other than the taxpayer to whom the ruling is made.
Issues
Does Company have an obligation to collect sales tax on e-books, online courses, and
virtual lessons?
Conclusion
1. Company has an obligation to collect sales tax on e-books because an e-book is
tangible personal property.
2. Company has an obligation to collect sales tax on online courses because the
instructional material and videos being sold are the sale of tangible personal property
and not a service.
3. Company's virtual lessons are exempt from sales tax because these are services
provided by Company.
Background
Company is located in Colorado and operates a website by which it sells e-books. The ebook is a .PDF document that people can purchase and download. Company also plans to
introduce new products in the coming years, such as an online course and virtual lessons.
Customers will purchase and access the online course on Company's website with a
password. The online content will consist of written material and videos. Lastly, Company
plans to sell virtual lessons that customers can purchase. To conduct the virtual lesson,
customers will submit a video and pay to have it critiqued by an instructor who will write
comments for the customer and respond with a video of their own.

DR 4010A (06/11/14)

Structure of Analysis
To determine whether Company's ebooks, online courses, and virtual lessons are subject
to tax, the Department will examine the following questions:
1. Is the item taxable under§ 39-26-104(1), C.R.S.?
a. Is the item tangible personal property sold or purchased at retail?
b. If the item is not purely tangible personal property, does the item contain both
potentially taxable and nontaxable elements?
i. If it contains both potentially taxable and nontaxable elements, are the
nontaxable service components and taxable tangible personal property
separable and separated?
ii. What is the true object of the customer in the transaction?
2. Is the item eligible for any exemptions?
Discussion
E-book
Colorado levies sales and use tax on the sale, use or consumption of tangible personal
property in Colorado.1 Tangible personal property is statutorily defined as "corporeal
personal property."2 Corporeal is typically defined as that which is physical, tangible, or
material in nature.3 In contrast, intangible personal property does not have a physical
existence and is conceptual in nature, such as a contract, stock, and goodwill.
E-books are tangible personal property because they have a physical existence. Unlike
intangible personal property, they are not merely concepts or ideas, but, rather, are part of
the real world. This is particularly true because these books can be downloaded and
printed out by the customer. Thus, the sale of Company's e-book is subject to sales tax.
We acknowledge that the taxability of electronically transmitted goods is a complex and
controversial area of taxation. Among other things, we note that beginning July 1, 2012
and as stated in Department Publication FYI Sales 89, electronically transmitted computer
software is not subject to sales or use tax.4 However, this statute does not govern the sale
of digital goods, such as electronically delivered books.
Online Course
As noted above, the sale of tangible personal property is subject to sales tax. However,
with a few exceptions, the sale of services are not subject to sales tax. The principal issue
relating to the online course is whether the video and written content of the online course is
tangible personal property or a service. The provision of education and training is generally
a nontaxable service. For example, schools are generally considered the sellers of a
service and, therefore, charges for instruction are not subject to sales tax. On the other
hand, the sale of non-custom DVDs providing instruction is considered the sale of tangible
personal property and subject to tax.5
1
2
3
4
5

2

§ 39-26-104(1) and 202, C.R.S.
§ 39-26-102(15), C.R.S.
Merriam-Webster Desk Dictionary (1995); American Heritage College Dictionary, 3rd Ed. 1993.

§ 39-26-102(15)(c}(I), C.R.S.
See, for example, Florida Technical Assistance Advisement No. 94A-046, 08/03/1994
(instructional videos for homeschooling are taxable sales of tangible personal property); West
Virginia Technical Assistance Advisory No. 88-003, 05/16/1988 (self-study instructional videos
DR 4010A (06/11/14)

Generally, to be considered a nontaxable educational or training service, the program must
be a course of instruction, tutoring, personal training, or a similar activity where there is
some form of interaction between student and instructor.6 Instructional videos alone do not
provide a service to the customer because there is no access to an instructor. The online
course provides users access to instructional material and videos that are used for selfstudy. This is analogous to accessing textbooks, "how-to" books or videos, or manuals.
Simply viewing or reading materials that may be considered instructional in nature does not
constitute a course of instruction, tutoring or training as a service. Training materials such
as books, videos, and manuals, including such items delivered electronically, digitally, or
through any other medium, are tangible personal property. Thus, the online course is the
taxable sale of tangible personal property.
Virtual Lessons
The principal issue relating to the virtual lesson is whether the video and written responses
of the virtual lesson are tangible personal property or a service, and, even if it is tangible
personal property, is the "true object" of the transaction a nontaxable service. The virtual
lessons contain videos and written comments. There is no question that the virtual lesson
contains tangible personal property components in the form of the written comments and
video response. However, there is also a service component to the virtual lessons in the
form of a critique by an instructor who will write comments for the customer and respond
with a video of their own. Based on the facts provided, the tangible personal property
components are neither separable nor separated from the service components in this
transaction because without the tangible personal property, there is no means to convey
the critique.7 Because the bundled transaction cannot be separated, we look to the true
object test. When applying the true object test to the virtual lessons, we find that the true
object of the transaction is not the video and written comments themselves, but the critique
on the video and in the written comments. The virtual lessons are more properly viewed as
the sale of nontaxable services, and the tangible personal property used in the transaction
is incidental to the performance of the service. Thus, the virtual lessons are not subject to
Colorado sales tax.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please
note that the Department administers state and state-collected city and county sales taxes
and special district sales and use taxes, but does not administer sales and use taxes for
self-collected home rule cities and counties. You may wish to consult with local
governments which administer their own sales or use taxes about the applicability of those
taxes. Visit our web site at www.colorado.gov/tax for more information about state and
local sales taxes.
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company's representations. The ruling is null and void if any such
representation is incorrect and has a material bearing on the conclusions reached in this
are taxable sales of tangible personal property, except if the instruction relates to a profession).
See also, FYI Sales 52 "Service Enterprises"
6
Texas Policy Letter Ruling No. 200812241L, 12/16/2008.
7
See 1 CCR 201-5, Special Regulation 52, Service Enterprises.
3

DR 4010A (06/11/14)

ruling and is subject to modification or revocation in accordance to Department Regulation
24-35-103.5.
This ruling is binding on the Department to the extent set forth in Department Regulation
24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom the
ruling is made.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling will be made public within 60 days of the date of this letter.
Please let me know in writing within that 60 day period whether you have any suggestions
or concerns about this redacted version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom
the ruling is made.

4

DR 4010A (06/11/14)