Sales Tax For SaaS: An Update

By Steve Sehy, Chris Livingston, and Jennifer Dunn

A state-by-state breakdown of SaaS sales tax status

States have been rapidly changing the sales tax environment for internet businesses, including Software-as-a-Service (SaaS) companies. The changes include changing definitions of SaaS, changing the taxability of SaaS, and changing the requirements for determining for which states a company needs to collect sales tax. Since none of this contributes to company revenue or income, the best-case scenario is break-even, and the worst-case scenario includes paying sales tax to a state (up to 10 percent of revenue) when you didn’t collect it and penalties as well. While larger companies may have a team working on this, small to midsize SaaS companies are struggling to deal with this issue.