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. Revenue 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, i.e. a chat room or a digital help desk for prerecorded videos.
Classes, including prerecorded videos, which do not allow for real-time interaction between the presenter and participants, are subject to retail sales tax and B&O tax under the Retailing classification.
Example 1: You operate a fitness studio. Twice a week you and your clients use video teleconferencing software to meet virtually. You provide two-way video and audio connectivity, allowing you and your participants to interact during the class. Participants may either pay a monthly fee to attend or have the option to pay-per-class. Revenue from such activity is subject to B&O tax under the Service and other Activities classification.
Example 2: You operate an online cooking class. Your customers pay a flat monthly fee to view a live stream of your cooking class. There is no real-time interaction between you and your students. Revenue generated from this activity is subject to retail sales tax and B&O tax under the Retailing classification.
Note: Job Corps operators and service providers are subject to B&O tax, retail sales tax, and use tax on their business activities that are not from the operation of a Job Corps center or services provided to a Job Corps center, unless another tax exemption applies.