How is SaaS taxed in Texas?

Texas treats SaaS as a data processing service. Twenty percent of the charge is exempt, so tax applies to 80% of the price at the customer's state and local rate. At Houston's 8.25% combined rate, a $1,000 monthly subscription carries $66 of tax, an effective 6.6%.

What is Maryland's 3% tax on SaaS?

Since July 1, 2025, Maryland taxes software publishing, data and IT services at 3%. The Comptroller says SaaS bought for use in a business's enterprise computer system is taxed at 3%, while SaaS bought for individual use is a digital product taxed at the 6% general rate, because the higher rate applies when both could.

What is a multiple points of use (MPU) certificate?

It's a form a business customer gives a software seller when the software will be used by staff in several states. The seller stops collecting tax, and the buyer pays use tax directly to each state on the share used there. Maryland and Washington accept MPU certificates, and Tennessee uses a similar direct pay permit for remotely accessed software.

Do I need to collect SaaS sales tax if my company is in a state that doesn't tax it?

Possibly. Taxability follows the customer's location, not yours. If you have economic nexus in a state that taxes SaaS, typically by passing $100,000 of sales there, you register and collect on subscriptions sold to customers in that state, even if your own state doesn't tax software.

Is SaaS taxable in California?

Generally no. California's software regulation says sales of prewritten programs transferred electronically, without any storage media, aren't taxable, and remote access to a computer isn't treated as a taxable lease. Canned software on a disk or other physical medium is taxable.

Sales tax

SaaS Sales Tax by State in 2026: Where Software as a Service Is Taxable

SaaS sales tax by state in 2026: which states tax software as a service, business-use rules, Maryland's 3% tech tax, multiple points of use and worked examples.

Edited by Sumeet YadavFounder & editor, MSMETOOLS · fact-checked against official sources

Updated October 2026 Verified against official sources 13 October 2026 15 min read

SaaS sales tax by state — MSMETOOLS guide cover

Contents (10)

1. Why SaaS is taxed differently in every state
2. SaaS sales tax by state: the main taxing states
3. How the big SaaS states work
4. Maryland's 3% tech tax and SaaS
5. Business use vs personal use
6. Customers with users in several states: MPU and apportionment
7. Nexus: when a SaaS company has to register
8. Worked example: one subscription, eight states
9. Common mistakes and how to fix them
10. What to do next

If you sell software by subscription, the question of SaaS sales tax by state decides whether your $49-a-month plan needs a tax line, and which rate goes on it. There's no federal rule. Each state decides whether software as a service is taxable, and they classify it in different ways: as prewritten software, as a digital product, as a data processing service, or not at all. This guide is for SaaS founders, finance teams and the accountants who advise them. It lists the states that tax SaaS according to their own guidance, explains business-use exemptions, Maryland's 3% tech tax and multiple points of use certificates, and works one subscription through eight states, all checked in October 2026.

Quick answer

SaaS is taxable in a minority of states, but they include some big markets. Texas (80% of the charge), New York, Pennsylvania, Washington, Tennessee and Louisiana tax it, Connecticut at 1%, Maryland at 3% for business systems, and Ohio for business use. Iowa taxes consumer SaaS but exempts exclusive business use. California and many others don't tax it.

Taxability follows the customer's location, not the seller's
Business customers using software in several states can often apportion the tax with an MPU certificate
SaaS sales count toward economic nexus, usually at $100,000 of sales into a state
Rules change: Louisiana started taxing SaaS on January 1, 2025 and Maryland's 3% rate on July 1, 2025

Why SaaS is taxed differently in every state

Sales tax laws were written for physical goods, then stretched to cover software on disks, then downloads, then software you never download at all. When states reached SaaS, they took three different routes.

SaaS as software. Some states say a right to use prewritten (canned) software is a sale of software, whether you install it or reach it through a browser. New York's Tax Bulletin ST-128 says the sale of a licence to remotely access software is subject to sales tax. Pennsylvania's Act 84 of 2016 put canned software into the definition of tangible personal property however it's delivered, accessed or paid for, including by subscription. Tennessee changed its definition of software to include software that stays with the seller and is accessed remotely for use in the state.

SaaS as a digital product or service. Other states tax SaaS as a digital product or a listed service. Washington calls it remote access software and treats it as a retail sale. Iowa lists software as a service among its taxable services. Texas treats SaaS sellers and application service providers as providers of data processing services. Ohio taxes electronic information services and automatic data processing when bought for use in a business. Maryland taxes it as a software publishing service at 3% or as a digital product at 6%.

SaaS as not taxable. Many states have no rule that reaches SaaS. California's software regulation says a sale of prewritten software transferred electronically, with no storage media changing hands, isn't taxable, and that remote access to a computer isn't a lease. Most states without a digital products or computer services tax fall into this group.

The label on your pricing page doesn't decide the answer. What the customer receives, and how the state's statute describes it, does.

Rows of black server racks with blue network cabling in a data center — The software stays on the seller's servers, so states have had to decide whether access to it is a sale of software, a service or neither.· Image: rawpixel (public domain) (CC0 1.0)

SaaS sales tax by state: the main taxing states

This table covers the states whose guidance we checked for 2026. It isn't a complete list of every state that taxes SaaS in some form. Gross receipts states, such as New Mexico and Hawaii, tax most business income including software subscriptions, and South Dakota taxes services unless exempt. Check every state where you have customers.

SaaS sales tax by state (2026, from state guidance)

State	Taxable?	How it's classified	Rate / base
Texas	Yes	Data processing service	6.25% + local on 80% of the charge
New York	Yes	Prewritten software (remote access)	4% + local, by user location
Pennsylvania	Yes	Canned software	6% + local, by user location
Washington	Yes	Remote access software (digital product)	6.5% + local
Tennessee	Yes	Remotely accessed software	7% + local, by user location
Louisiana	Yes, from Jan 1, 2025	Prewritten software access service	5% + local
Connecticut	Yes	Computer and data processing service	1%
Maryland	Yes	Software publishing service / digital product	3% business systems; 6% individual
Ohio	Business use only	Electronic information service / ADP	5.75% + county
Iowa	Consumers; business use exempt	Listed taxable service	6% + local option
California	No (electronic delivery)	Not a taxable transfer	—

Texas

Taxable?: Yes
How it's classified: Data processing service
Rate / base: 6.25% + local on 80% of the charge

New York

Taxable?: Yes
How it's classified: Prewritten software (remote access)
Rate / base: 4% + local, by user location

Pennsylvania

Taxable?: Yes
How it's classified: Canned software
Rate / base: 6% + local, by user location

Washington

Taxable?: Yes
How it's classified: Remote access software (digital product)
Rate / base: 6.5% + local

Tennessee

Taxable?: Yes
How it's classified: Remotely accessed software
Rate / base: 7% + local, by user location

Louisiana

Taxable?: Yes, from Jan 1, 2025
How it's classified: Prewritten software access service
Rate / base: 5% + local

Connecticut

Taxable?: Yes
How it's classified: Computer and data processing service
Rate / base: 1%

Maryland

Taxable?: Yes
How it's classified: Software publishing service / digital product
Rate / base: 3% business systems; 6% individual

Ohio

Taxable?: Business use only
How it's classified: Electronic information service / ADP
Rate / base: 5.75% + county

Iowa

Taxable?: Consumers; business use exempt
How it's classified: Listed taxable service
Rate / base: 6% + local option

California

Taxable?: No (electronic delivery)
How it's classified: Not a taxable transfer
Rate / base: —

How the big SaaS states work

Texas. The Comptroller's guide to taxable services says data processing providers include sellers of software as a service and application service providers. For data processing, 20% of the charge is exempt, so you charge the state's 6.25% plus local tax on 80% of the price. Merely using a computer as a tool to deliver a professional service isn't data processing, so a consultant who uses software to produce a report isn't selling SaaS. See our Texas sales tax guide.

New York. A licence to remotely access software is taxable, and New York sources it to where the customer uses or directs the use of the software, not to where the code sits. When a customer has users in several states, the seller collects tax on the portion of the receipt attributable to users in New York. Custom software designed to a buyer's specifications isn't taxed. Our New York sales tax guide has the local rates.

Pennsylvania. Canned software is taxable whether it's delivered electronically, streamed or accessed, and whether bought singly or by subscription. Remotely accessed software is taxed when the user is in Pennsylvania. If the billing address is in Pennsylvania, all users are presumed to be there, but a business buyer can allocate licences used by its out-of-state employees on Form REV-1220, and the unallocated licences remain taxable.

Washington. The Department of Revenue says remote access software is a retail sale subject to sales or use tax, and sellers owe retailing B&O tax on it too. A business that buys software only to provide it remotely to its own customers has an exemption on that purchase.

Tennessee. The definition of taxable software includes software that stays in the seller's possession and is accessed remotely for use in Tennessee. A buyer with users inside and outside the state can give the seller a Remotely Accessed Software Direct Pay Permit and pay tax itself on the Tennessee share of users, or, if it isn't registered in Tennessee, use the Streamlined certificate to exempt the out-of-state share.

Louisiana. From January 1, 2025, Louisiana's state and local sales tax applies to digital products and prewritten software access services, with examples such as office suites, video meeting tools and CRM platforms. There's an exemption for products used exclusively for commercial purposes directly in producing taxable goods or services. Louisiana's Department of Revenue site blocks automated access, so this summary relies on an accounting firm's review of its guidance; confirm the details on the Department's digital products pages.

SaaS sales tax at a glance (2026)

80%

Share of a Texas SaaS charge that's taxed

20% exempt

Maryland rate on SaaS for business systems

6% for individual use

Connecticut rate on computer and data processing services

Jan 1, 2025

Louisiana began taxing SaaS

Maryland's 3% tech tax and SaaS

Maryland is the most recent big change. Since July 1, 2025, data services, information technology services and software publishing services described in NAICS sectors 518 and 519 and subsectors 5132 and 5415 are taxed at 3%. Technical Bulletin 56 says SaaS is both a digital product and a software publishing service. Because Maryland applies the higher rate when two rates could apply, SaaS sold for individual use is taxed at 6%. The same SaaS sold for use in an enterprise computer system, meaning a business's own systems, is taxed at 3%.

Each subscription payment is a separate sale, so a payment falling due after July 1, 2025 was taxable even if the subscription started earlier. Contracts signed before that date generally weren't taxed on services performed or paid for later, but a change order adding new services counts as a new sale.

A business buyer that uses the software inside and outside Maryland can give the seller a multiple points of use certificate and apportion the tax itself, for example by the share of its employees or licences in Maryland. The seller must refuse the certificate if it knows or should know the software is used only in Maryland. Our Maryland sales tax guide covers the 3% tax in more detail, including the July 1, 2026 exemption for sales between affiliated companies.

Business use vs personal use

Several states draw the line between businesses and consumers, in opposite directions.

Ohio taxes business use only. Its law makes automatic data processing, computer services and electronic information services taxable when they're provided for use in business and the true object is the computer service itself rather than a personal or professional service. A consumer subscribing to the same tool for personal use isn't taxed. Transactions between members of an affiliated group aren't sales.

Iowa exempts business use. Iowa lists SaaS as a taxable service, but Iowa Code section 423.3 exempts specified digital products, prewritten software and certain listed services sold to a commercial enterprise for use exclusively by that enterprise. Noncommercial use that's more than de minimis disqualifies the exemption. For Iowa, a commercial enterprise includes for-profit businesses, insurers, financial institutions, professions and utilities. In practice, most Iowa SaaS tax falls on consumer subscriptions and nonprofits.

Maryland splits the rate. Enterprise use is taxed at 3%, individual use at 6%.

Louisiana exempts some products used exclusively for commercial purposes in producing taxable goods or services.

For sellers, this means you need to know whether each customer is buying for business or personal use, and keep the certificates or account data that prove it.

A laptop and a large monitor showing code on a wooden office desk with plants behind — Whether a subscription is bought for business or personal use changes the tax in Ohio, Iowa and Maryland.· Image: DaveFayram (CC BY 2.0)

Customers with users in several states: MPU and apportionment

A SaaS contract with a company that has staff in ten states raises an obvious question: whose tax applies? States answer in three ways.

Apportion by user location. New York taxes the share of the receipt attributable to users in New York. Pennsylvania presumes all users are in the state when the billing address is there, unless the buyer allocates out-of-state employees' licences on Form REV-1220.

Multiple points of use certificate. The buyer tells the seller the software will be used in several places. The seller stops collecting, and the buyer pays use tax to each state on its share. Washington allows an MPU exemption for digital products used both inside and outside the state, with the buyer paying use tax on the Washington portion; it doesn't cover personal use. Maryland's MPU certificate works the same way for its 3% services.

Direct pay permit. Tennessee's Remotely Accessed Software Direct Pay Permit lets a registered buyer pay the tax on the Tennessee share of its users directly.

For sellers, accepting these certificates shifts the work and the liability to the buyer. Store each certificate with the customer's contract, and check it's renewed when the state requires it. Our exemption certificate guide explains how to collect and keep them.

Nexus: when a SaaS company has to register

Taxability is half the question. You only have to collect in states where you have nexus. For most SaaS companies, that means economic nexus: sales into the state above a threshold, most commonly $100,000 a year, and in some states a number of transactions. A subscription business can cross a transaction test quickly, because every monthly charge may count as a separate sale.

Because SaaS is often taxable in states other than the seller's home state, a company based in California, which doesn't tax SaaS, can still owe tax in Texas, New York and Washington once its sales there pass the threshold. Some states count all sales, taxable and exempt, toward the test. Our economic nexus guide lists every state's threshold and measurement period.

When you sell SaaS through an app marketplace that takes payment from the customer, the marketplace may be the one collecting tax. See our marketplace facilitator laws guide.

Worked example: one subscription, eight states

A SaaS company sells a $1,000-a-month plan to business customers. It has nexus in every state below. Here's the monthly tax on one customer with all its users at the address shown, at 2026 rates.

$1,000 monthly business subscription

Customer location	Taxable base	Rate	Monthly tax
Houston, Texas	$800 (80%)	8.25%	$66.00
New York City	$1,000	8.875%	$88.75
Philadelphia	$1,000	8%	$80.00
Seattle	$1,000	10.55%	$105.50
Baltimore, Maryland (enterprise use)	$1,000	3%	$30.00
Columbus, Ohio (business use)	$1,000	8%	$80.00
Des Moines, Iowa (exclusive business use)	$0	Exempt	$0
Los Angeles	$0	Not taxable	$0

Houston, Texas

Taxable base: $800 (80%)
Rate: 8.25%
Monthly tax: $66.00

New York City

Taxable base: $1,000
Rate: 8.875%
Monthly tax: $88.75

Philadelphia

Taxable base: $1,000
Rate: 8%
Monthly tax: $80.00

Seattle

Taxable base: $1,000
Rate: 10.55%
Monthly tax: $105.50

Baltimore, Maryland (enterprise use)

Taxable base: $1,000
Rate: 3%
Monthly tax: $30.00

Columbus, Ohio (business use)

Taxable base: $1,000
Rate: 8%
Monthly tax: $80.00

Des Moines, Iowa (exclusive business use)

Taxable base: $0
Rate: Exempt
Monthly tax: $0

Los Angeles

Taxable base: $0
Rate: Not taxable
Monthly tax: $0

Texas. 20% of the $1,000 is exempt, leaving $800 taxed at 8.25%: $66.

New York with users in several states. If the New York customer has 10 users, 4 in New York City and 6 in New Jersey and Connecticut, the seller taxes only the New York share: $400 × 8.875% = $35.50. The other states' rules then apply to their shares where the seller has nexus.

Maryland, business vs consumer. The business plan bought for the customer's enterprise system is taxed at 3%, or $30. If the same company sold a $20 personal plan to an individual in Baltimore, the rate would be 6%, or $1.20.

Iowa, business vs consumer. A Des Moines company using the software only in its business can claim the commercial enterprise exemption. A Des Moines consumer buying a $20 personal plan pays the 7% combined rate, $1.40.

Ohio. The business subscription is taxable at the Franklin County rate of 8%. A personal subscription to the same product wouldn't be.

Common mistakes and how to fix them

Assuming SaaS is never taxable. The most common and most costly mistake. Back tax, interest and penalties on several years of subscriptions can be large, and you can't usually recover the tax from customers after the fact. If you've crossed thresholds in taxing states, consider voluntary disclosure.

Taxing on the seller's address. SaaS is taxed where the customer uses it. Collect a service address, not just a billing address, and for business customers ask where users are located.

Ignoring business-use rules. Charging Ohio consumers or Iowa businesses tax they don't owe is over-collection, which you must refund or pay over.

Bundling taxable and non-taxable items. If you sell SaaS with separately priced consulting, training or support, itemize them. Some states tax the whole bundle if it isn't split.

Not tracking law changes. Louisiana in 2025 and Maryland in 2025 both added SaaS to the tax base. Review your state list at least once a year.

SaaS sales tax checklist

0/7

Official links

What to do next

List your customers by state, mark the states above where you have customers, and test nexus in each one using our economic nexus guide. For the broader question of which services states tax, see our sales tax on services guide, and use the sales tax calculator to check a subscription price.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

In some states. Texas, New York, Pennsylvania, Washington, Tennessee, Connecticut, Maryland and Louisiana tax it in some form, and Ohio taxes it when bought for business use. Iowa taxes it but exempts sales to businesses for exclusive commercial use. California and many other states don't tax it. Each state classifies SaaS differently, as software, a digital product or a data processing service.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 13 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1.Taxable Services (96-259) — Texas Comptroller of Public Accounts · accessed 13 October 2026
2.Tax Bulletin ST-128, Computer Software — New York State Department of Taxation and Finance · accessed 13 October 2026
3.Canned Computer Software and Digital Goods — Pennsylvania Department of Revenue · accessed 13 October 2026
4.Digital products — Washington Department of Revenue · accessed 13 October 2026
5.Notice #15-24, Remotely Accessed Software Direct Pay Permit — Tennessee Department of Revenue · accessed 13 October 2026
6.Technical Bulletin No. 56: Data or IT Services and Software Publishing Services — Comptroller of Maryland · accessed 13 October 2026
7.Iowa Code § 423.3 (exemption 104) — Iowa Legislature · accessed 13 October 2026
8.Iowa Sales and Use Tax: Taxable Services — Iowa Department of Revenue · accessed 13 October 2026
9.Information Release ST 1999-04, Online Services and Internet Access (rev. Sept 2022) — Ohio Department of Taxation · accessed 13 October 2026
10.Sales Tax Information — Connecticut Department of Revenue Services · accessed 13 October 2026
11.Regulation 1502, Computers, Programs, and Data Processing — California Department of Tax and Fee Administration · accessed 13 October 2026
12.Louisiana Taxation of Digital Products — Baker Tilly (secondary) · accessed 13 October 2026

MSMETOOLS is an independent platform and is not affiliated with any government agency, ministry or department.

We provide tools, guides and information for general educational purposes only. Always refer to official government websites for the latest and most accurate information.