Taxes · Sales tax

Sales Tax for SaaS services

Luis Berga Co-Founder at Music Meets Video

June 16th, 2014

Hi everyone, 

I was asked earlier today if I knew what the sales taxes in Texas would be for a SaaS/Cloud service and I had no idea. When I went to do some research on it, I found that saas and cloud services are a big gray area for many states. 

It looks like Texas does tax those services but I couldn't find a number of what the sales tax would be. 

Any help is greatly appreciated!

David Crooke Serial entrepreneur and CTO

June 16th, 2014

There are 3 components to Sales Tax in Texas ...... state (6.5%), county (varies) and local (varies) ..... here in Austin you charge all three, 8.25% total. If you're in Austin, ping me offline :)

removed Remover Freelance Software Product Developer at Greenfield Innovation

June 16th, 2014

You can offload that whole class of problem to specialists.
E.g., use an API to determine a tax rate per deal.

http://developer.avalara.com/

Mark Lawler Mark Lawler: Senior Technology Executive

June 24th, 2014

Hi Luis,


You are right that software as a services is a very gray area in the sales tax law.  While many states have taken very firm stances on the issue, many rely on previously defined rules governing what is taxable and what is exempt in the state.

 

As it would related to TX, they are one of the states that does relies on the gray area of their law as it relates to software as a service offerings.  For a complete analysis of the law, you may want to check the follow provisions: Sec. 151.009, Tax Code; Sec. 151.010, Tax Code; 34 TAC Sec. 3.308(b)(2); 34 TAC Sec. 3.308(b).

 

At a high level, TX takes the position that any software is taxable irrespective of its delivery method.  They further go on to elaborate that SAAS is also taxable if it is deemed to be “data processing services”.  There are several other rulings that I could point out for you but at high level, I do believe that the above would answer your question:  SAAS and cloud computing are taxable in TX.  If the vendor does not charge sales tax to you on the invoice, you should accrue and remit the use tax that would be due to the state.

 

The TX state rate is 6.25% percent but there are also local rates that apply generally making the total rate somewhere closer to 8.25%.  There is a great sales tax rate lookup directly on the state’s website under the “Local Sales Tax” area where you can easily plug in an address and get back the correct rate for that would be due.

 

Here’s to hoping that this helps sheds some light on this gray area for and good luck as you move forward with this tough problem.

Rob G

June 25th, 2014

i would sure like to see some legislation (federal unfortunately) that would place a moratorium  on remittance of sales or use taxes for SaaS/online services at the state and local level until a state provides a free, well-documented, and high-performance API with clear and concise methodology for calculating and remitting said taxes.  This is 2014 isn't it? 

David Crooke Serial entrepreneur and CTO

June 16th, 2014

Oh, you don't collect from out of state customers where you don't have ground presence, they pay Use Tax locally, and if the customer is tax exempt (501(c)3 non profit) then you don't charge them either, file a copy of their IRS certification.