In other words, software as a service such as a cloud computing program that is only remotely accessed without the delivery of a tangible medium and does not include the user taking possession of the program is not subject to sales or use taxes. When a SaaS company sells its product, it must comply with the tax laws of the region in which the product was purchased. Those are the sales tax laws in every state, province, county, or region where they sell products. Unfortunately, clarity doesn't seem to come soon for those in the software industry.
A small form of relief may come from some states in the form of MPU exemption certifications. MPU, or multiple points of use, places the burden of paying use tax on the purchaser of the software subscription. In the meantime, the seller has no responsibility to collect taxes. Instead, customers of software subscriptions must spread their purchase and remit the use tax accordingly.
Typically, the SaaS provider hosts the software on its own server, which may be located in a different state than the buyer or user is in. So, if services are generally taxable in the state, such as in Arizona, then SaaS is considered taxable. It's easy to overlook the site of a transaction, especially when it may seem irrelevant in a remotely accessed software world. EisneRamper LLP is a licensed CPA firm that provides certification services, and Eisner Advisory Group LLC and its subsidiary entities provide tax and commercial consulting services.
Particularly with sales of software subscriptions, it can be ambiguous if a sale counts as one or more transactions. With cloud computing, one can purchase software without downloading it to their computer and instead access the program through any Internet connection. Software and Software-as-a-Service (SaaS) companies continue to be the fastest-growing segment of the industry in the U.S. UU.
Texas takes the opposite approach, defining canned software as tangible personal property, making it taxable across all delivery methods. The borderless nature of the provision of technological products and services makes taxation a challenge for companies of all sizes, from business to business. With the downloaded software, one would download software directly from a website and then store it on your computer. First, the product itself must be analyzed on a state-by-state basis to determine the nature of the sale, whether it's tangible personal property or a service.
Sales and use tax does not apply to SaaS transactions where a customer gains access to the software on a remote network without receiving a copy of the software, while the seller retains sole possession and control of the software. AvaTax has the most powerful tax engine available on the market with real-time tax rates and rules for millions of products and services and 70,000 tax jurisdictions worldwide. Broadly speaking, if a state taxes canned software as tangible personal property, it can also exempt canned software as it would for tangible personal property. What further complicates the matter is that some states view cloud computing as a service, not as a sale of tangible goods.
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