SaaS Sales Tax, State by State — A 2026 Primer

Last verified: 2026-06-02 against state Department of Revenue / Comptroller sources (cited at the end of this post).

Whether SaaS is subject to sales tax depends on how each state defines "taxable software" and whether it treats cloud-hosted software as a taxable service, a data-processing service, or a non-taxable service. In 2026 the answer still varies widely — and a handful of states tax SaaS in ways most "taxable / not taxable" lists gloss over. Here is the landscape, plus the mechanics that change what you actually remit.

Generally taxable

These states treat SaaS as taxable under their general sales tax rate or a specific digital services rate:

New York, Pennsylvania, Connecticut (reduced 1% rate), Washington
Texas (80% of the charge — see below), Ohio, Utah, Tennessee, South Dakota, Hawaii
Washington DC, Iowa, West Virginia, New Mexico, Rhode Island
Maryland — newly taxable: 3% on most business/enterprise SaaS, 6% on consumer digital products (see below)

Generally NOT taxable

These states do not tax SaaS under current rules (though definitions can shift):

California (treated as a non-taxable service)
Florida, Georgia, Illinois, Michigan (pure cloud SaaS — see caveat), Wisconsin
Virginia, North Carolina, New Jersey, Colorado

The mechanics most SaaS guides skip

Three taxable states do not apply their headline rate to the full subscription. Getting this wrong over- or under-collects:

Texas — the 80/20 rule. Texas taxes SaaS as a data processing service but exempts 20% of the charge as an information service, so only 80% of a SaaS subscription is taxable (Texas Comptroller Rule 3.330; Tax Code § 151.351). On a $1,000/yr plan, tax applies to $800. State rate is 6.25% (up to 8.25% with local tax).
Maryland — split 3% / 6%. Effective July 1, 2025, Maryland repealed its enterprise/custom-software exemption and imposes a 3% tax on data, IT, system-software and application-software publishing services (Chapter 604, Acts of 2025). SaaS sold for use in a commercial or enterprise computer system is taxed at 3%; consumer-facing digital products remain at the general 6% rate.
Connecticut — reduced 1%. Connecticut taxes "computer and data processing services," including SaaS, at a reduced 1% rate rather than the 6.35% general rate.

Is SaaS taxable in Texas?

Yes. Texas treats SaaS as a taxable data processing service, but only 80% of the charge is taxable — the remaining 20% is an exempt information service that applies automatically, with no exemption certificate required. See the Texas SaaS guide for the full breakdown.

Is SaaS taxable in Virginia?

No. Virginia does not tax SaaS or other electronically delivered software. Electronically delivered software is presumed exempt unless there is evidence that physical (tangible) delivery occurred (Va. Code § 58.1-609.5). You may still trigger an economic-nexus registration duty on the revenue even though the sales are non-taxable.

Is SaaS taxable in Michigan?

Pure cloud SaaS accessed through a web browser is not taxable in Michigan. The caveat: if your product includes a downloadable desktop component, that prewritten-software element can be taxable (Michigan Revenue Administrative Bulletin 2023-10). Bundled pricing that mixes a download with the hosted service is the common exposure point.

Is SaaS taxable in Maryland?

Yes, as of mid-2025. Maryland now taxes SaaS and related technology services: 3% when sold for use in a business or enterprise computer system, and 6% as a consumer digital product. The earlier enterprise/custom-software exemption was repealed effective July 1, 2025.

The economic nexus question applies regardless

Even in states where SaaS itself isn't taxable, the economic nexus threshold can still require you to register. Crossing the threshold on subscription revenue means you file returns — they just report zero taxable sales. If your product bundles taxable goods or services alongside the SaaS subscription, you collect on those components.

How to determine your product's taxability

Identify whether your product is pure SaaS (web-hosted software accessed via browser) or includes downloads, prepackaged software, or professional services — each has different tax treatment.
For each state where you have customers, check how that state defines taxable software (canned vs. custom, cloud vs. prewritten).
Consider an automated taxability service (Avalara, Stripe Tax, Quaderno) that maintains per-state rules as they change.
When in doubt, register and remit — penalties for under-collection are higher than the cost of over-cautious compliance. You can usually request refunds if you later determine a sale was non-taxable.

Sources

Texas Comptroller — "Data Processing Services Are Taxable" (Publication 94-127); Texas Tax Code § 151.351. Retrieved 2026-06-02.
Maryland Comptroller — Technical Bulletin No. 56 (sales and use tax on data/IT and software publishing services); Chapter 604, Acts of 2025. Retrieved 2026-06-02.
Michigan Department of Treasury — Revenue Administrative Bulletin 2023-10 (prewritten computer software). Retrieved 2026-06-02.
Virginia Tax — retail sales & use tax treatment of electronically delivered software (Va. Code § 58.1-609.5). Retrieved 2026-06-02.