Online instructional classes

Are online instructional classes subject to sales tax?

Live online classes that allow for real-time participation and interaction between the presenter and the participants are not subject to retail sales tax. The gross income generated from this type of business activity is subject to business and occupation (B&O) tax under the service and other activities classification.

The interaction between the presenter and the participants must be a part of the live class and not just a separate ability to ask questions. Classes, including prerecorded videos, with interaction through a chat room or a digital help desk do not provide real-time participation.

Online classes which do not allow for real-time participation or interaction between the presenter and the participants are subject to retail sales tax and B&O tax under the retailing classification.

Examples

The examples provided below are to be used only as a general guide. The tax results of other situations must be determined separately after review of all the facts and circumstances. 

Example 1

John owns a fitness studio and offers an online training class twice a week. Participants pay a monthly fee to attend the classes. During the class, John can interact with participants through two-way video and audio connectivity.

John must report the gross income earned from the online training class under service and other activities B&O tax. Retail sales tax would not apply since the class allows live interaction between John and his participants. 

Example 2

Cooking Company offers a live stream cooking class for a flat monthly fee. The live stream allows customers to watch the class, but it does not allow them to ask questions on a real time basis.

Cooking Company must report the gross income earned from the online cooking class under retailing B&O tax and collect retail sales tax. 

References

WAC 458-20-15503 – Digital products.

RCW 82.04.192 – Digital products definitions.