SaaS Sales Tax by State

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.

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.

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.

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.”)

State	Is SaaS Taxable?	Source
Alabama	Yes	Alabama Department of Revenue
Alaska	Yes (Alaska has no statewide sales tax, so this is only applicable in jurisdictions that levy a sales tax).	Alaska Remote Sellers Sales Tax Commission
Arizona	Yes	Arizona Department of Revenue Letter Ruling
Arkansas	No	Arkansas Tax Code
California	No	California Regulation 1502
Colorado	No, however, some Home Rule Cities tax SaaS. Check with the individual cities with which you are registered to collect sales tax.	Colorado Department of Revenue
Connecticut	Yes, but taxed at different rates depending on usage. SaaS for personal use is taxable at the full Connecticut state rate while SaaS for business use is taxed at 1%.	Connecticut Department of Revenue Services
Florida	No	Florida Department of Revenue
Georgia	No	Georgia Department of Revenue (Link opens in PDF)
Hawaii	Yes	Hawaii Department of Taxation
Idaho	No	Idaho State Tax Commission
Illinois	No, but the Chicago Personal Property Lease Transaction Tax does apply to SaaS.	Illinois Administrative Code
Indiana	No	Indiana Department of Revenue
Iowa	Yes for personal use, but SaaS is not taxable when used for commercial or business purposes.	Iowa Department of Revenue
Kansas	No	Kansas Department of Revenue
Kentucky	Yes	Kentucky Department of Revenue
Louisiana	Yes	Louisiana Department of Revenue
Maine	No	Maine Revised Statutes
Maryland	Yes for personal use. However, SaaS is not taxable when used for commercial purposes where the software will be used by multiple users and will operate with other software or computers.	Comptroller of Maryland (p.21)
Massachusetts	Yes	Massachusetts Department of Revenue
Michigan	No	Michigan Department of Treasury
Minnesota	No	Minnesota Department of Revenue
Mississippi	No, but if the software is stored on a server in the state, it is considered taxable.	Mississippi Department of Revenue
Missouri	No	Missouri Department of Revenue (specifically, Mo. Code Regs. tit. 12 § 10-109.050(3)(I))
Nebraska	No	Nebraska Department of Revenue (316 Neb. Admin. Code, ch. 1, § 088(.01))
Nevada	No	Nevada Department of Taxation
New Jersey	No	New Jersey Division of Taxation
New Mexico	Yes	New Mexico Taxation and Revenue Department
New York	Yes	New York Department of Taxation and Finance
North Carolina	No	North Carolina Department of Revenue (p. 75)
North Dakota	Yes	North Carolina Department of Revenue (Bulletin 19-3 (C) page 80)
Ohio	Yes. However, SaaS for business-to-consumer (B2C) is exempt.	Ohio Department of Taxation
Oklahoma	No	Oklahoma State Tax Commission (Okla. Stat. tit. 68 § 1354)
Pennsylvania	Yes	Pennsylvania Department of Revenue
Rhode Island	Yes	Rhode Island Division of Taxation
South Carolina	Yes	South Carolina Department of Revenue
South Dakota	Yes	South Dakota Legislature
Tennessee	Yes	Tennessee Code
Texas	Yes, but at a rate of 80% of the full tax rate (20% of the total tax charged for data processing services is tax-exempt in Texas).	Texas Comptroller
Utah	Yes	Utah State Tax Commission
Vermont	Yes	Vermont Department of Taxes
Virginia	No	Virginia Tax
Washington	Yes	Washington Legislature
Washington DC	Yes	Washington DC Office of Tax and Revenue
West Virginia	Yes	West Virginia Code § 11-15-9h
Wisconsin	No	Wisconsin Department of Revenue (p. 10)
Wyoming	No	Wyoming Code

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.

Sales Tax on SaaS: FAQ

Below are frequently asked questions on SaaS sales tax.