Global Training Providers Face Complex Web of US, EU Tax Rules

Online education is a rapidly growing sector, with some research firms expecting it to exceed $1 trillion by 2030. As e-learning increasingly blurs the lines between services, software, and digital goods, its tax treatment has become a complex challenge for global training providers.

US sales taxes and EU value-added tax apply to online courses, and there are key factors that determine taxability. As the saying goes, “knowledge is power,” and for online education businesses, understanding the tax rules is essential to staying compliant while empowering learners around the world.

US online learners benefit from a pricing advantage. Many states don’t tax online courses, especially those delivered live or treated as non-taxable services, and there is no federal tax to worry about. For online course providers, however, the fragmented state and local tax landscape creates significant compliance challenges.

In contrast, the EU VAT regime offers greater consistency. VAT applies uniformly to automated, self-paced digital courses. Yet the broad tax base and high standard rates, typically around 20%, mean most business-to-consumer online course sales are taxed, increasing the cost of education for consumers.

Format Drives Taxability

In both the US and EU, whether an online course is taxable often hinges on format—that is, if the training is pre-recorded or live. In the US, pre-recorded, self-paced courses frequently are treated as taxable digital products or software, particularly when they include interactive features or downloadable materials.

The Streamlined Sales and Use Tax Agreement, or SSUTA, followed by 24 states, defines “live digital online educational services” as non-taxable. Many non-SSUTA states follow similar logic: Courses conducted in real time with instructor interaction typically are treated as non-taxable services.

However, this treatment doesn’t apply in states that broadly tax services, such as Hawaii, New Mexico, South Dakota, and West Virginia, where nearly all services are subject to sales tax regardless of format.

The EU classifies automated, pre-recorded online courses as electronically supplied services. These are subject to VAT in the customer’s country, regardless of the provider’s location. In contrast, live interactive instruction is treated as a general service, not an electronically supplied service.

Business-to-consumer general services are taxed in the provider’s country. When such services are provided by a non-EU business, they are generally outside the scope of EU VAT. As a result, non-EU providers must charge VAT on self-paced courses, but not on live virtual training delivered to EU consumers.

Tax Exemptions

The provider’s status can affect taxability significantly. Most US states offer sales tax exemptions for tuition charged by accredited educational institutions and non-profit organizations. For instance, an accredited university offering an online computer science course typically wouldn’t charge sales tax on tuition.

In contrast, a private, for-profit company offering a similar course generally wouldn’t qualify for the exemption—even if the course is educational—because it isn’t an exempt institution under state law.

Similarly, the EU VAT Directive exempts educational services provided by public bodies or by other organizations recognized by an EU member country as having similar educational aims. For example, a degree-bearing online program from the University of Oxford would likely qualify for VAT exemption due to its recognized status.

As a general rule, providers of online courses in the EU should assume VAT applies unless they are recognized as an exempt educational institution under national law.

Local Quirks

US sales tax treatment of online training varies widely by state. California and other digital-friendly states such as Florida, Kansas, Nevada, and Oklahoma generally don’t tax online courses, unless bundled with physical goods such as printed materials.

New York draws fine distinctions in the tax treatment of online education based on functionality. In TSB-A-09(2)S (2009), the Department of Taxation and Finance ruled that a subscription to an interactive e-learning platform was taxable as prewritten software. However, in TSB-A-20(18)S (2020), a subscription to non-interactive, streaming video courses was ruled non-taxable.

Thus, in New York online courses that behave like software (interactive, adaptive learning) may be taxed as software, while those that consist solely of passive, recorded video content generally aren’t subject to sales tax.

Texas generally exempts educational services. In a 2022 private letter ruling, the state comptroller found that online learning subscriptions for academic and vocational training weren’t taxable because they qualified as educational services. But in the same ruling, a bundled “teacher plan” that included lesson planning, gradebooks, and tracking software was found to be a taxable data processing service.

The takeaway is that in Texas, online learning subscriptions generally aren’t taxed unless they include significant additional software tools.

Iowa exempts digital products and software when they’re used solely for business purposes. This means businesses purchasing online training—whether delivered as downloadable software or streaming content— for employee development may qualify for the exemption.

In contrast, Maryland and Washington state offer narrower business-use exemptions. In Maryland, it applies only to prewritten software but not to other digital content such as streaming e-learning modules, while in Washington, it covers only digital products.

US local tax regimes add another layer of complexity for online education providers. Even in states that don’t impose sales tax on online training at the state level, local jurisdictions may enact their own taxes on digital goods and software.

One important nuance is the treatment of “amusement” services, which can capture hobby-related or personal development courses. For example, while Illinois exempts electronically delivered content from state sales tax, the city of Chicago imposes a 10.25% amusement tax on streaming or electronically delivered entertainment. Additionally, Chicago levies an 11% personal property lease transaction tax on the use of remote software.

So although Illinois state law exempts digital educational content from sales tax, Chicago’s local taxes may still apply. For example, on-demand access to interactive online training might be considered a software lease, while a streamed recreational cooking class could fall under the amusement tax.

Looking Ahead

As online education grows into a trillion-dollar industry, taxes will play a bigger role in shaping prices, margins, and market entry decisions.

Providers that build compliance into their strategy from the start won’t just sidestep risks but they’ll also be better positioned to compete in a global market where demand for digital learning keeps accelerating.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Aleksandra Bal is global tax technology lead at Stripe and a frequent contributor to tax publications and industry conferences.

Daniel Rossi is a tax specialist at Stripe, where he focuses on US sales taxation.

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