If you’re a software-as-a-service (SaaS) company, determining if your offerings are taxable in the US is a challenge. Since most sales tax laws were written with tangible products in mind, many states are still determining how to manage sales tax on nontangible products.
Today, 24 states tax SaaS services, and an additional 7 states tax SaaS if customers are required to download software. Each state has come to this conclusion in different ways. For example, some states consider SaaS a service, not a product. So, if services are generally taxable in the state—such as in Hawaii—then SaaS is likely to also be taxable. In states where services aren’t taxable, SaaS is unlikely to be taxable. Other states, like Washington, consider SaaS to be an example of tangible software and is deemed taxable. In addition, certain states tax SaaS at a different rate depending on whether it’s being used for personal or business purposes. SaaS companies must be aware of how their offering is taxed in all the states where they have customers.
This guide will help you determine where SaaS businesses should be collecting sales tax from customers in the US.
Use this table to look up your customer’s location and whether SaaS is taxable in that state.
How Stripe can help
Staying on top of tax compliance trends and changes is complex and time-consuming. Stripe Tax reduces the complexity of global tax compliance so you can focus on growing your business. It automatically calculates and collects sales tax, VAT, and GST on both physical and digital goods and services in all US states and more than 30 countries. Stripe Tax is natively built into Stripe, so you can get started faster—no third-party integration or plug-ins are required.
Stripe Tax helps you:
- Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions and, after you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection to Stripe’s no-code products, such as Invoicing, with the click of a button.
- Register to pay tax: Stripe Tax provides links to the websites where you can register once you exceed the threshold to register.
- Automatically collect tax: Stripe Tax always calculates and collects the correct amount of tax, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rule and rate changes.
- Simplify filing and remittance: Stripe generates itemized reporting and tax summaries for each filing location, helping you easily file and remit taxes on your own, with your accountant, or with one of Stripe’s filing partners. Consult with your tax advisor to understand how specific requirements might apply to your business.
Stripe offers a few different reports depending on your integration; however, Stripe Tax doesn’t currently file or remit taxes on your behalf. For automating filing in the US, we recommend using TaxJar’s AutoFile solution. For Europe, we recommend using Taxually or Marosa. In Asia Pacific, we recommend Taxually.