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SaaS Sales Tax by State
Is software as a service (SaaS) "tangible personal property"? Can you charge sales tax on it? Each state has a different definition of what SaaS is and whether it’s taxable.
Not charging SaaS sales tax where you need to can lead to hefty penalties and audits that can harm your business.
- Zamp Learnings:
- What Is a SaaS Sale?
- Zamp Tip
- SaaS Sales Tax by Usage
- SaaS Taxability Can Blend Old and New Sales Tax Laws
- Free Download: Sales Tax Guide for SaaS
- Which States Charge Sales Tax on SaaS?
- State
- Is SaaS Taxable?
- Source
- SaaS Sales Tax: Conclusion
- Stressing over sales tax is a thing of the past.
- Sales Tax on SaaS: FAQ
Zamp Learnings:
- States are split on whether they require software providers to collect sales tax on SaaS. About half the states with a sales tax consider SaaS taxable, but slightly more consider it non-taxable.
- Definitions of what constitutes SaaS varies from state to state.
- Some states tax SaaS differently or not at all if SaaS is used for business.
- Because SaaS is a relatively new technology, some state tax authorities haven’t made a definitive ruling about sales and use tax on SaaS.
States breathe easy when a person or company buys a software program on a tangible disc or flash drive. The item sold is clearly tangible personal property and will generally be subject to sales tax.
However, things get tricky regarding Software as a Service (SaaS). With SaaS, customers access their software online, generally via subscription, and if they stop paying, they no longer get access to the software.
This post delves into each state’s rules and laws on SaaS. We’ve included sources so that you can investigate for yourself.
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What Is a SaaS Sale?
Some states see SaaS as tangible personal property because it is an electronic version of prewritten computer software that could be sold via disk or other tangible means.
Other states view SaaS as a service that is either taxable or non-taxable, depending on the state.
What to look out for is that some states tax SaaS, which is accessed remotely, differently than downloaded software that lives on a user’s computer or server.
Zamp Tip
When determining whether or not to charge sales tax on your SaaS product, look closely at how the state defines SaaS (or even if they do define it).
Since SaaS is still relatively new technology, some states have only obliquely referred to SaaS in their rules and laws. We always recommend that you consult a state and local tax (SaLT) expert about your business’s specific use of SaaS and the expected taxability.
SaaS Sales Tax by Usage
Maryland considers SaaS for personal use to be taxable, but SaaS for business use to be non-taxable. In Connecticut, however, SaaS for business use is taxed at a lower rate than SaaS for personal use.
SaaS Taxability Can Blend Old and New Sales Tax Laws
In Mississippi, SaaS is only taxed if the server where the app is hosted is located in-state. This is a callback to a time before South Dakota v. Wayfair when a business had to have some sort of physical presence in a state before being required to collect sales tax in that state.
Free Download: Sales Tax Guide for SaaS
Understanding SaaS sales tax is no easy feat. That’s why we’ve compiled all the information you need to ensure your SaaS business is sales tax compliant.
Get the Guide
Which States Charge Sales Tax on SaaS?
The chart below summarizes the taxability of SaaS in each state based on a state’s publication or law.
As always, keep in mind that each state defines SaaS differently, and these laws are changing rapidly.
We recommend speaking with a SaLT expert about your specific SaaS taxability obligations.
(Some of our sources link to pages full of legalese. To find the relevant portions on SaaS, search for “software,” “electronic” or variations of the word “compute.”)
SaaS Sales Tax: Conclusion
It’s no secret that dealing with sales taxes in different states can be confusing, especially for SaaS businesses that must file in states who haven’t clearly decided how to tax SaaS. Each state has different tax regulations and requirements when it comes to sales tax obligations.
If you’re looking for a fully automated sales tax solution, book a call with Zamp! Our solution provides rooftop accurate sales tax rates and calculations, product mapping, nexus monitoring, and more, so you never have to worry about being compliant.
Stressing over sales tax is a thing of the past.
From state registrations to sales tax filing, Zamp is a full-service platform that manages it all for you.
Learn More TodaySales Tax on SaaS: FAQ
Below are frequently asked questions on SaaS sales tax.
Do SaaS companies have to charge sales tax?
It depends. Sales tax responsibilities depend on whether the business has established economic nexus or hit thresholds in states that require SaaS to be taxed.
Does Florida charge sales tax on SaaS?
No, SaaS is not currently subject to sales tax in Florida.
About the author
Emily Kordys Emily Kordys is a Content Marketing Manager with seven years of experience in the sales tax, auto, and real estate industries. She currently resides in North Carolina with her boyfriend and dogs, Shadow and Copr.
- Zamp Learnings:
- What Is a SaaS Sale?
- Zamp Tip
- SaaS Sales Tax by Usage
- SaaS Taxability Can Blend Old and New Sales Tax Laws
- Free Download: Sales Tax Guide for SaaS
- Which States Charge Sales Tax on SaaS?
- State
- Is SaaS Taxable?
- Source
- SaaS Sales Tax: Conclusion
- Stressing over sales tax is a thing of the past.
- Sales Tax on SaaS: FAQ
