Where can you learn more about why Oklahoma does not charge software as a service (SaaS) sales tax?68 O.S. § 1354(A) defines which services in Oklahoma are subject to sales tax and software as a service is not defined as a taxable service. SECTION 710:65-19-156. Internet-related services and transactions stipulate that “data processing services” are not subject to sales tax. CHAPTER 65. SALES AND USE TAX defines “data processing services” on page 176. The Virginia Software Sales Tax exemption also applies to sales of software delivered electronically to customers, whether the software is pre-programmed or customized. The Virginia Department of Revenue has maintained a long-standing policy that Virginia`s public document Ruling No. 05-44 that the sale of electronically supplied software does not constitute a sale of personal tangible property and is not subject to VAT. This exception also applies to software updates that are then made available to the customer, provided that such updates are provided electronically.

If the sale of electronically supplied software involves important personal property, such as hardware or a backup copy of the software, the entire transaction is considered a sale of important personal property and is subject to VAT. Since the inclusion of important personal property in electronically delivered software changes the controllability of the transaction, the buyer must keep clear documentation indicating that the software was delivered electronically and that there was no exchange of significant personal property related to the sale. Virginia tax law provides that, in general, an amount charged separately for work or services provided as part of the modification of ready-to-use programs is exempt. An audit sample showed that the taxpayer charges a separate installation fee. Programming fees are audiovisual equipment adaptation services and are shown separately from installation costs. On this basis, programming services do not constitute a separately designated amount of work or service for the repair or installation of physical personal property. The fee does not apply to the modification of ready-to-use programs, as technicians do not change a computer or software. Rather, it is the programming of audiovisual equipment. The audiovisual equipment is the real object of the transaction. Programming services have no value to customers without audiovisual equipment. Therefore, programming services are duly taxable.

However, if the services had been provided without the sale of accompanying audiovisual equipment, the services would have been exempt from tax. This position that services, even if optional and specified separately, are taxable when sold in conjunction with taxable assets, shows how states restrict exemptions by interpretation without legislative changes. Washington D.C. – SaaS is considered a taxable service in Washington D.C. (Source) Washington requires sales tax on any predefined or customized software “if ownership of the software is maintained by the seller or a third party, whether the fee for the service is per use, per user, per license, subscription, or on any other basis.” You will also likely have to pay the business and occupancy tax on the sale of the service. This tax is not levied by the customer, but paid directly by the seller. 117-329 Communications services defines taxable communications services (see page 2). Arkansas does not explicitly identify Software-as-a-Service in its code as taxable or exempt. However, all electronically supplied software is considered intangible and exempt from tax.

In addition, Arkansas does not list Software-as-a-Service as a taxable type of service. If you sell software as a service in Arkansas, you may need a private letter decision to determine if your product is taxable in your state. Indiana defines Software-as-a-Service as a service provider that hosts a software application over the Internet for a customer. Software that can be accessed remotely from a hosted computer or server or through a pool of resources shared from multiple computers and services (“cloud computing”) without the need to download the software to the user`s computer is not considered retail transaction and, therefore, such software is not subject to Indiana sales or use tax. New Mexico does not have a law that explicitly defines software as a service, but retained and customized software is considered taxable, and professional software creation services are taxable in New Mexico. Therefore, Software-as-a-Service is subject to gross income tax in New Mexico. You should pay special attention to how the user license is managed, because if the license is transferred to the end user, this could constitute a sale of property (in addition to the sale of tangible personal property), which means that the end user could also be subject to property tax. Software as a Service (SaaS) is a model in which software is hosted in one place, but licensed as a subscription for use by customers. TaxJar, for example, is a SaaS company. The decision in Arizona`s private letter LR10-007 identifies leased and subscription-based software as taxable. Rhode Island charges sales tax on predefined software, whether hosted or not by the provider. Rhode Island defines provider-hosted software as “predefined computer software accessible via the Internet and/or a server hosted by the provider, whether the access is permanent or temporary, and regardless of whether a download takes place or not.” Knowing that SaaS companies need to protect both their bottom line and their reputation, the risk of not being compliant is not an option.

But just like many other “new” technologies, most states haven`t quite figured out whether or not SaaS is taxable in their state. Why doesn`t Virginia charge software-as-a-service (SaaS) sales tax? Virginia does not charge sales tax on software as a service unless it is significant personal property entering the state. Transactions for cloud-based or hosted services are exempt from retail sales and usage tax. Since no significant personal property is transferred to clients, additional services and maintenance services required by the taxpayer are also not subject to the tax. However, some applications may be taxable if they fall within the definition of a communications service. However, a problem may arise with the documentation of the electronic delivery/ remote access of the software. State auditors are quick to reject an exemption and estimate the tax if sufficient documentation is not provided. The Virginia Department of Taxation`s minimum documentation requirements for confirming electronic delivery of software products are set out in Public Document (P.D.) 05-44 (April 4, 2005). == References == 05-44 states that “at least one sales invoice, contract or other purchase contract must expressly certify the electronic delivery of the software and that no hardware data carrier for this software has been made available to the customer. (Emphasis added.) Software delivered electronically, downloaded with a “key” or code, or downloaded by the seller to a company`s computers is not taxable in Virginia.

The Virginia law explicitly provides for a tax exemption, in part for “services that do not involve exchanges of physical personal property that enable access to or use of the Internet and other related electronic communications services, including software, data, content, and other information services provided electronically over the Internet.” Similarly, software as a service (SaaS), in which users remotely access software on the server of a provider or third party without receiving anything tangible, is not taxable. It seems relatively simple: it is also taxable; electronically also released. Georgia – SaaS is considered non-taxable in Georgia because it is not part of the services listed as taxable and is not available in the physical media. (Source) Because the Virginia Department of Revenue does not provide a specific exemption certificate for custom software or software delivered electronically on its website, any Virginia company that makes a purchase of eligible exempt software may send a letter to its suppliers containing the following information based on the Guidelines of the Virginia Code Ann. .