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 “tangible personal property” and is generally subject to sales tax. 

But 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. With SaaS, tangible software like a disc generally doesn't change hands.

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 SaaS Sales?

Some states see SaaS as a tangible personal property because it is an electronic version of a “prewritten computer software” that would have, in the past, or still could be sold via disk or other tangible means. 

Other states see SaaS as a non-taxable service. Still, other states see SaaS as a taxable service.

When determining whether or not to charge sales tax on your SaaS product, look closely at how the state defines SaaS.

Since SaaS is still a relatively new way of doing business, some states have only obliquely referred to SaaS in their rules and laws. We always recommend that you consult a state and local tax expert (SaLT) about your business’s specific use case regarding SaaS taxability.

SaaS Sales Tax by Usage

Maryland considers SaaS for “personal use” to be taxable, but SaaS for “business use” to be non-taxable. Ohio is the direct opposite, taxing SaaS for business use but not 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.

While some states have changed their rules and laws to accommodate the particular set of circumstances around SaaS, other states have applied existing laws to SaaS, sometimes with unpredictable results.

Which States Charge Sales Tax on SaaS?

The chart below details states where SaaS is and is not taxable along with a source from the state’s Department of Revenue or code of laws.

As always, keep in mind that each state might define SaaS differently, and these laws are changing rapidly. 

We recommend speaking with a SaLT about your specific SaaS taxability use case.

(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 SaaS sales tax can be confusing, especially for SaaS businesses that need to file state sales tax. Each state has different tax regulations and requirements when it comes to sales tax obligations and what must be remitted.

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.

About the author

The Zamp Team

The Zamp Team consists of experienced writers and editors who are dedicated to researching sales tax topics to help readers make smart decisions about their business and sales tax compliance. Collectively, the team has over 200 years of sales tax experience.