SaaS sales tax by state: what you need to know

SaaS taxability is one of the most confusing areas of U.S. sales tax law. There’s no federal rulebook, and every state defines “software” and “services” differently. This guide gives you the full picture — where SaaS is taxed, where it’s exempt, and how classification, customer use, and local rules all shape your obligations.

TL;DR: Is SaaS taxable?

Yes. In the U.S., SaaS is taxable in some states — but not all.

• 24 states tax SaaS in some form as of October 2025.
• A handful of others apply tax only when software is downloaded or delivered on tangible media.
• 5 states — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no statewide sales tax, though some Alaska localities impose local SaaS tax under the ARSSTC.

There’s no national rule for SaaS taxability. Each state classifies it differently:

• as a digital product (taxable in Washington and Hawaii),
• a data processing service (partially taxable in Texas), or
• a non-taxable service (common in California and Florida).

And even in taxable states, you only need to collect sales tax where your SaaS business has a physical or economic nexus — a tax presence that triggers registration and filing.

Bottom line: A monthly SaaS subscription can be taxed completely differently depending on where the customer is located. Automating compliance with a tool like TaxCloud removes the guesswork and keeps you compliant in every state you sell.

Where is SaaS taxable in the U.S.? SaaS sales tax by state breakdown.

This table shows which states require businesses to charge sales tax on software as a service (SaaS) as of October 2025. Confirm rates with each Department of Revenue.

Sources: State Departments of Revenue; TaxCloud internal database.
Table updated October 2025. Verify rates with each state’s Department of Revenue.

For a deeper dive, check out our SaaS sales tax state guides:

• California SaaS Sales Tax Guide
• New York SaaS Sales Tax Guide
• Michigan SaaS Sales Tax Guide
• Texas SaaS Sales Tax Guide

Why is SaaS sales tax so complicated in the U.S.?

SaaS taxation is messy because U.S. sales tax laws were written for physical goods, not cloud software. Each state defines software, services, and digital products differently — which means the same subscription can be taxable in one state and exempt in another.

At a high level, SaaS sits in a gray area between tangible property and professional service.

Some states treat it like downloadable software (taxable), while others classify it as a remote service (non-taxable). The result is a patchwork of rules that shift depending on location, product type, and customer use.

1. How states classify SaaS

• Taxable as a digital product: Hawaii and Washington both treat SaaS as a taxable digital service.
• Taxable as data processing: Texas taxes 80% of SaaS charges under its “data processing” rule.
• Non-taxable as a service: California and Florida exempt SaaS because no tangible property changes hands.

Even within a single state, local jurisdictions can add complexity. Chicago applies a 9% Personal Property Lease Transaction Tax on SaaS, while some Colorado and Louisiana cities impose their own digital service taxes.

2. How SaaS is delivered

Some states draw a line between downloaded software and remotely accessed software.

• If customers install or download the code (like desktop apps), the transaction is often taxed.
• If they only access the service online (true SaaS), it’s more likely to be exempt.

3. Who the customer is located

Several states tax SaaS differently for business vs. consumer use.

• Connecticut: 1% tax for business use, full rate for personal use.
• Iowa: Taxable for consumers, exempt for business customers.

4. Where the customer is (nexus rules)

Since the 2018 South Dakota v. Wayfair decision, states can require remote sellers to collect sales tax if they have economic nexus in that state — usually triggered by $100,000 in annual sales or 200 transactions generated in that state.

You only need to collect SaaS sales tax from customers who are based where your SaaS business has nexus (physical or economic).

5. What else is bundled with the SaaS

When SaaS is sold with consulting, implementation, or support, the entire bundle can become taxable — unless charges are itemized separately. States view mixed transactions differently, so clear invoicing is key.

Takeaway: SaaS taxability isn’t about what you sell — it’s about how, where, and to whom you sell it. That’s why manual tracking doesn’t scale. Platforms like TaxCloud automatically monitor rule changes and nexus thresholds so your SaaS sales tax compliance adapts as you grow.

How to calculate and collect SaaS sales tax in the U.S.

Calculating and collecting SaaS sales tax comes down to three recurring steps:

1. Register where you have nexus

You must hold a valid sales tax permit in every state (or city) where your business meets physical or economic nexus thresholds.

2. Collect and record the correct rate

Sales tax rates vary by state, county, and sometimes city. Because SaaS rates and exemptions differ, you need accurate mapping of customer locations and product tax codes.

3. File and remit on schedule

Each state has its own filing frequency and portal. Missing deadlines or filing in the wrong jurisdiction can trigger penalties, so maintaining a reliable calendar or automated filing tool is critical.

Even for small SaaS teams, managing this manually across multiple jurisdictions quickly becomes unsustainable.

Automate SaaS sales tax the smart way. TaxCloud connects directly with billing platforms like Chargebee to calculate, collect, and file sales tax automatically across all 50 states. See how TaxCloud’s finance team uses the TaxCloud Chargebee integration to automate sales tax compliance for subscription billing

How to automate SaaS sales tax compliance

Manual tracking doesn’t scale. Once a SaaS company passes a few hundred customers, sales tax compliance becomes a full-time job.

When SaaS teams eventually outgrow the spreadsheet systems, here’s how automation platforms now handle the entire compliance workflow:

• Integrate your billing system (Stripe, Chargebee, Recurly) to track sales by location.
• Monitor nexus thresholds so you know when to register in new states.
• Calculate and collect tax at checkout, using updated rates and exemptions.
• File and remit automatically according to each jurisdiction’s rules.
• Keep audit records organized and defensible.

Automation not only saves time — it eliminates risk. Once a SaaS company passes a few hundred customers, manual sales tax tracking isn’t just inefficient, it’s dangerous.

TaxCloud simplifies this by connecting directly to your billing platform, monitoring nexus across all 50 states, and handling calculation, filing, and audit support automatically.

Why the SST Program matters for SaaS sales tax compliance

Twenty-four states participate in the Streamlined Sales Tax (SST) program, which simplifies multistate compliance.

If your SaaS business registers through an SST-certified provider like TaxCloud, those states cover the cost of core services — including registration, filing, and remittance — at no charge to the seller. This effectively gives you free filing in nearly half the country.

TaxCloud also uses Taxability Information Codes (TICs) to classify SaaS transactions correctly in every jurisdiction. The most common codes on the platform are:

• 30070 – Infrastructure as a Service
• 93205 – Remotely accessed software for business use
• 93206 – Remotely accessed software for personal use

Choosing the right TIC ensures consistent treatment across states and avoids audit risk.

Handling past SaaS tax exposure with VDAs

Many SaaS finance teams don’t realize they’ve triggered nexus until after the fact — often through remote employees or high sales volume across multiple states.

When that happens, the focus shifts from setup to cleanup: figuring out how much is owed and how to get compliant without heavy penalties.

One common route is a Voluntary Disclosure Agreement (VDA) — a state-run program that lets businesses come forward, settle back taxes, and limit look-back periods in exchange for disclosure and payment.

TaxCloud supports this process by making historical sales data easy to import and reconcile, so teams can work with their advisors or states directly to resolve exposure and automate compliance going forward.

What’s the best software to manage SaaS sales tax calculation?

TaxCloud is the best software to manage SaaS sales tax calculation in the U.S. The sales tax automation platform automatically calculates the correct SaaS tax rate for each customer, automates sales tax filing, automates nexus tracking, provides audit support, and more.

Staying compliant shouldn’t slow your growth. With TaxCloud, SaaS companies can launch, scale, and expand across states without worrying about sales tax complexity.

See how TaxCloud helps SaaS businesses to learn more.

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Disclaimer: Tax laws are constantly changing. This information is for general purposes only and is not legal or tax advice. Businesses selling SaaS should consult a tax professional or use sales tax automation software to ensure compliance in all relevant jurisdictions.