State Indirect Taxation in a Digital Economy: What's Changing and Why

In this episode of This Week in State Tax (TWIST), Harley Duncan is joined by Jeff Cook to explore how states are expanding indirect tax rules to keep pace with a rapidly evolving digital economy. The discussion starts with “traditional” digital products—such as digital books, music, and audiovisual works—and explains how definitions and tax treatment have broadened over time to include streaming services and other digital transactions.

The conversation then turns to digital advertising taxes and the emerging patchwork of differing state approaches, including the complexities of sourcing and apportionment—often tied to device location—and the practical challenges that can arise. The episode also contrasts digital advertising taxes with social media-focused taxes, emphasizing the importance of statutory definitions and exclusions. Finally, Harley and Jeff discuss recent state activity involving newer areas such as prediction markets and daily fantasy sports, highlighting how states view these platforms through both revenue and regulatory lenses.