Sales Tax on SaaS

Sales Tax on SaaS

New Jersey

Does New Jersey require sales tax on Software-as-a-Service (SaaS)?

New Jersey generally does not require sales tax on Software-as-a-Service.

Why does New Jersey not require sales tax on Software-as-a-Service (SaaS)?

New Jersey states that cloud computing and Software-as-a-Service are non-taxable because the software is not “electronically delivered” to the end-user. So long as the software is hosted in the cloud and not delivered to the end-user then it does not fit the definition of taxable personal property. New Jersey further defines Cloud Computing as “… services that allow a customer to access and use the software of a service provider. The software is hosted by a seller that owns, operates, and maintains the software. The seller houses the software on its own servers. Customers access the software via the Internet. The software is not transferred to the customer, nor does the customer have the right to download, copy, or modify the software.”

Where can you go to learn more about why New Jersey does not require sales tax on Software-as-a-Service (SaaS)?

Section 54:32B-3 defines what is taxable, and Informational Bulletin on Cloud Computing TB-72 references Software-as-a-Service.


New York

Does New York require sales tax on Software-as-a-Service (SaaS)?
New York requires sales tax on Software-as-a-Service.

Why does New York require sales tax on Software-as-a-Service (SaaS)?
Although New York has not explicitly defined Software-as-a-Service in its statutes, the Department of Taxation and Finance has issued various advisory opinions indicating that software accessed remotely is taxable. In contrast, readers should note that computing power is considered a non-taxable service in New York and therefore not subject to sales tax. Computing power refers to a specific array of a processor, memory and storage, and is often involved when customers purchase computer instances in order to run their own software applications.

Where can you go to learn more about why New York requires sales tax on Software-as-a-Service (SaaS)?

This tax bulletin published by New York explains how sales tax applies to sales of computer software and related services. This advisory opinion clarifies that cloud computing is not subject to sales tax. The following advisory opinions clarify that Software-as-a-Service is subject to sales tax in New York: TSB-A-13(22)S, TSB-A-09(44)S, TSB-A-09(25)S, TSB-A-09(15)S, TSB-A-08(62)S, and TSB-A-15(2)S.

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