The Highlights
- Roughly 25 states impose a sales tax on SaaS
- Certain states with no statewide sales tax can still have local sales taxes on SaaS
- No-sales-tax states like Delaware and Montana can be optimal if your priority is minimizing your sales tax burden
The world of digital services is fast-changing, and sales tax regulations have become equally dynamic to keep up. As it is, roughly 25 states across the U.S. impose taxes on SaaS in some form, making software-as-a-service tax compliance a challenge. Learn more about SaaS sales tax automation software and simpler compliance with this RJM Tax Exemption guide.
State-by-State SaaS Sales Tax Automation Breakdown
| State | Base Sales Tax Rate | Is SaaS Taxable? |
| Alabama | 4.00% | No |
| Alaska | 0% | Yes (rates vary locally) |
| Arizona | 5.60% | Yes |
| Arkansas | 6.50% | No |
| California | 7.25% | No |
| Colorado | 2.90% | Yes (rates vary locally) |
| Connecticut | 6.35% | Yes |
| Delaware | 0% | No |
| District of Columbia | 6.00% | Yes |
| Florida | 6.00% | No |
| Georgia | 4.00% | No |
| Hawaii | 4.00% | Yes |
| Idaho | 6.00% | No |
| Illinois | 6.25% | Yes (rates vary locally) |
| Indiana | 7.00% | No |
| Iowa | 6.00% | Depends on B2B/B2C use |
| Kansas | 6.50% | No |
| Kentucky | 6.00% | Yes |
| Louisiana | 5.00% | Yes |
| Maine | 5.50% | No |
| Maryland | 6.00% | Depends on B2B/B2C use |
| Massachusetts | 6.25% | Yes |
| Michigan | 6.00% | No |
| Minnesota | 6.88% | No |
| Mississippi | 7.00% | Yes |
| Missouri | 4.23% | No |
| Montana | 0% | No |
| Nebraska | 5.50% | Yes |
| Nevada | 6.85% | No |
| New Hampshire | 0% | No |
| New Jersey | 6.63% | No |
| New Mexico | 4.88% | Yes |
| New York | 4.00% | Yes |
| North Carolina | 4.75% | No |
| North Dakota | 5.00% | No |
| Ohio | 5.75% | Depends on B2B/B2C use |
| Oklahoma | 4.50% | No |
| Oregon | 0% | No |
| Pennsylvania | 6.00% | Yes |
| Rhode Island | 7.00% | Yes |
| South Carolina | 6.00% | Yes |
| South Dakota | 4.20% | Yes |
| Tennessee | 7.00% | Yes |
| Texas | 6.25% | Yes |
| Utah | 6.10% | Yes |
| Vermont | 6.00% | Yes |
| Virginia | 5.30% | No |
| Washington | 6.50% | Yes |
| West Virginia | 6.00% | Yes |
| Wisconsin | 5.00% | No |
| Wyoming | 4.00% | No |
Arizona, Kentucky, Massachusetts, New Mexico, New York, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, and Washington
These states consider SaaS as tangible personal property, prewritten software, or digital products, making SaaS sales tax automation somewhat simpler. SaaS businesses are taxed at combined rates from 6 to 9.5%.
Connecticut, Iowa, Maryland, and Ohio
Sales tax responsibilities in these states depend on use and B2B/B2C status. For example, SaaS taxation is B2B/B2C dependent in Iowa, Maryland, and Ohio. Ohio charges a 5.75% sales tax if the software is used for a business.
Hawaii
SaaS in Hawaii is taxed subject to the General Excise Tax. Prewritten software, considered as tangible personal property, is taxed at 4%, while a wholesale rate of 0.5% may apply if the software is sold to a reseller.
Louisiana, South Carolina, South Dakota, Texas, and West Virginia
SaaS sales tax automation here needs to account for whether SaaS is treated as data processing, communications, or digital services. Rates range from 6 to 10% combined.
Alaska, Colorado, and Illinois
Software-as-a-service tax compliance in these states depends on local regulations, as these states empower local authorities to determine their own rates.
District of Columbia and Mississippi
D.C taxes digital goods at 6%. For MS, it depends on whether the service is hosted in-state (7%) or not. If you’re using SaaS sales tax automation software, you’ll have to adjust for these state-by-state sales tax details.
Which States Don’t Impose a Sales Tax on SaaS?
SaaS sales tax automation for states like Delaware, Montana, New Hampshire, and Oregon should adjust for the fact that these territories don’t impose a statewide tax on SaaS. However, Delaware’s gross receipts tax may indirectly trigger a nexus.
Simply Your SaaS Sales Tax Obligations
Navigating sales tax for SaaS is easier when you’re working with experts who specialize in multi-state taxation. Book a free consultation with RJM Tax Exemption and find out how we can simplify your sales tax filing obligations with our lightning-fast timelines and competitive prices.
Frequently Asked Questions
Do I have to pay SaaS sales tax if my state imposes no sales tax?
Generally, no. However, your state may allow local jurisdictions to impose their own sales tax on SaaS, such as Colorado or Alaska. You can get assistance with your SaaS sales tax needs with RJM.
Do I have to register and file zero returns in non-taxing states?
Software-as-a-service tax compliance in these states depends on your nexus. If you have no nexus or taxable states, you typically don’t need to file zero returns. That said, you should still maintain records.
Which states are the best in terms of SaaS sales tax?
The no-sales-tax states like Delaware and Montana are typically best if you’re looking to minimize your SaaS sales tax liability.
