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Sales Tax Bytes Ep. 6

The Taxability of Software

 

Understanding the Taxability of SaaS Isn’t Simple: Here’s What You Need to Know

In this video, TaxConnex Partner Brian Greer explains why software taxability has become increasingly complex and why assuming SaaS is non taxable can put your business at risk. As software delivery evolved from physical disks, to downloads, to cloud based access, states updated how they classify and tax it. Today, about half of all states tax SaaS in some form, with several local jurisdictions adding their own rules.

Brian highlights three commonly misunderstood areas:

  • Texas, where SaaS is treated as taxable data processing with a 20 percent exemption.
  • Illinois, where SaaS isn’t taxed at the state level but is taxed in Chicago at an 11 percent lease tax.
  • Colorado, where the state doesn’t tax SaaS, but many home rule cities do.

If your business sells or relies on SaaS, understanding these distinctions is critical for staying compliant. Have questions about how these rules apply to your business or need better support with sales tax?

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