Digital Tax Rules for Online Courses

Teaching is a noble profession. For all of you in the modern era, who are producing amazing online courses to teach people around the world, we salute you! We want to help you do your job even better. The main thing that we at Quaderno can teach is how digital taxes affect your business. So here goes!

Whether you’re teaching marketing or fitness, a history of the world or how to tie a shoe, your students may have to pay consumption tax when they purchase your course. Learn about sales tax for online courses, in which countries it’s applied, and what sites or software can help you handle it.

Tax factors for online courses

Taxes for distance learning depend on several factors. Basically, a few traits of your online course will determine whether it’s considered a digital service and therefore subject to sales tax, VAT, GST, or whatever other consumption tax.

Here’s a quick rundown of those traits and a general summary of how they’re taxed. Of course, each jurisdiction may have their own tax quirks, so you should read the next sections, too, and double check the rules in the countries where you sell.

Downloadable vs. Pre-Recorded vs. Live Webinars

Generally, live webinars are not taxed as digital products. But some places will even distinguish between streamed or downloaded, even though both are technically “delivered electronically."

Fully automated vs. Interaction with and among students

Is there an interactive element, either between other students or with the instructor? Is there a live tutoring component? Is there an evaluation that’s conducted by a human, rather than a computer?

This is a key point of automation. Generally, automated online courses are subject to digital tax, whereas courses with human interaction are not.

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 or CDs that are sold or delivered in tandem with the e-course can be taxed.

How specific countries tax online courses

US sales tax for online courses

The US sales tax system is notoriously complicated, and it’s no different with sales tax for 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.

Read on to learn more about US sales tax for digital products.

EU VAT for online courses

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 involving minimal human intervention.

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, check out our post on everything you need to know about VAT.

*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 GST for online courses

When it comes to creating 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 or not 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.

For more detailed information, check out our posts on digital taxes in Australia or New Zealand.

How are you providing 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, such as the five below, 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.

5 platforms for online courses

LearnWorlds sales tax for online courses

LearnWorlds is the go-to solution for small & medium businesses that need to build their online academy and sell courses, memberships, and subscriptions. You can create a complete website, reach your audience with powerful marketing tools and, of course, provide unparalleled learning experiences for your users. Among tens of native integrations with your favorite apps shines Quaderno, which automatically handles your sales tax compliance and empowers you to focus on creating content that sells.

Teachable sales tax for online courses

Teachable is a platform that will help you produce and market your online course. Their ability to handle consumption tax depends on which country you’re selling to and whether you’re using Teachable’s payment gateway.

Within the US, Teachable will handle federal taxes, but not state-level taxes. This leaves a lot of tricky calculations for you, but their advice is that “you may wish to add an average tax amount to the base purchasing price for the course, and then save that amount to pay your taxes.” So, bump up your product prices to cover tax.

For sales in the EU, Teachable will handle every step of EU VAT if you’re using Teachable’s payment gateway. (These include debit/credit cards, PayPal, and Stripe.) They’ll charge the right rate, collect the tax, and even handle tax returns for you. If you’re using a custom gateway, then VAT is automatically added to the transaction, but you get no assistance when tax season rolls around.

All other countries are your responsibility.

Kajabi sales tax for online courses

Kajabi is an all-in-one platform and marketplace for developing and selling your online courses and other knowledge products. Kajabi does not charge or collect tax for you. The two options for handling consumption tax on Kajabi sales is to include the right tax percentage in your product prices, or to connect a Quaderno account, which will automate everything for you.

Thinkific sales tax for online courses

Thinkific is another popular platform that will help you build, market, and sell your online courses. It does not handle tax automatically. This is to allow for exempt courses to avoid collecting tax from students, which was the drawback listed above. To solve tax compliance for any sales through Thinkific, we partnered with them on a Quaderno integration.

Mighty Networks sales tax for online courses

Mighty Networks is a platform not just for your online courses, but also for website building, subscriptions, memberships, and managing an online community. You can create your content via Mighty Courses. The platform doesn’t handle tax automatically, but connecting a Quaderno account will handle everything from calculation to reporting.

How Quaderno can help

Keeping up with all the various definitions, regulations, and tax rates around the world can be a full-time job in itself. But you should spend your time doing what you’re best at: creating fantastic online teaching material and helping people learn new skills.

Quaderno can take over all of this tax compliance for you. Every step is automated, no matter which country you’re selling to. We charge the correct tax on every sale (across any sales channel), track tax thresholds in countries like Australia, and account for exemption rules so you never overcharge. Plus, when it’s time to file your taxes, our instant tax reports will help you finish filing in minutes.

Get back your time and peace of mind, and try Quaderno for free for 14 days.