Sales Tax on SAAS. What I Learned, and You Should Know!

I was presenting at the OpenView CFO Forum in Boston (on SAAS contracts) last week to their portfolio companies, and at the conference I learned quite a lot from the Grant Thornton tax presenters about the current state of confusion of the applicability of sales tax to SAAS transactions. GT wrote a short article on it, so I thought it was worth sharing on my blog, as their article was on point and timely (plus I thought I would provide my 2 cents worth).

My takeaways from the article are:

1) Current State: Most states have not specifically addressed taxation of software-as-a-service transactions, and so you have to shoehorn it into their existing rules (i.e. it is messy and a grey area).  You understand, as your hosting company is in x state, you are in y state and your customer is in z state.

2) Form of Agreement Matters: The form of agreement you use matters (is it a ‘software license agreement,’ ‘subscription services agreement,’  ’professional services agreement,’ or something in between), but of course so does the substance of the services you are providing.

3) Proposed Federal Legislation: There is no answer yet, but there is a bill going through Congress which could help provide some clarity and predictability on taxation of SAAS. Here is the latest on the bill (at least on one website).

Take a read of the short Grant Thornton article, as I think they nailed the current state of things–even if there is no clear guidance right now–and is a must read for your finance leader.

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Hire an attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.

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