Stephen P. Kranz, Mark E. Nebergall & Jonathan C. Hague (McDermott Will & Schulte), AI Tokens and Sales Tax: Key Considerations, 121 Tax Notes State 239 (July 27, 2026):

AI product providers increasingly offer customers access to their platforms through “tokens,” credits, or other usage-based entitlements. These arrangements may allow a customer to submit prompts, process data, generate outputs, or make AI functionality available to the customer’s own users. In some models, tokens are consumed based on several different usage measures, such as the size or complexity of the user’s prompt or query, the amount of computing resources (“compute”) used to process the query, and the size or complexity of the resulting response or output. Other providers may instead charge a flat subscription fee for unlimited or bundled access during a defined period. Although these products may be marketed as tokens, credits, or subscriptions, the sales and use tax analysis generally should begin with the rights conveyed by the tokens and the product or service the tokens allow the purchaser to receive

The first question is how the transaction should be characterized for state sales and use tax purposes. In many AI token arrangements, the purchaser does not receive a copy of the provider’s model, software, training data, or property interest in infrastructure. Instead, the purchaser receives rights to query and receive outputs from the functionality owned and operated by the provider. Depending on the state, receipt of those rights might be regarded as software as a service (SaaS), remotely accessed prewritten software, a digital automated service, data processing, an information service, or some other electronically delivered service. State law, not the commercial label used by the parties, will control the result.

AI token transactions should be analyzed by looking through the token to the underlying rights and functionality delivered later to the purchaser. When tokens are consumed across separately metered usage categories, providers should evaluate whether each category has the same characterization, sourcing, and taxability treatment in the relevant jurisdiction. If prepaid tokens can be used across separate usage categories with different tax treatment, they may not qualify as a redemption code under the SSUTA framework. Because state rules vary and continue to evolve, AI product providers and business customers should review token-based and subscription-based offerings closely before launch or before expanding sales to customers in additional jurisdictions.