Critical checklist: Sales Tax for SaaS
Is Software as a Service (SaaS) taxable in Washington?
bySeptember 18, 2020
Sales tax can be complex when you sell a SaaS product. For one thing, some states consider SaaS taxable while others don’t. Further, some states dig even deeper, and pass laws that say things like SaaS is taxable if your customer is other businesses (B2B) but it’s not taxable if you are selling business-to-consumer (B2C).
This post will go over what you need to know about SaaS taxability if you are selling SaaS products to customers in Washington State.
If you’re brand new to sales tax, we recommend checking out our Navigating Sales Tax Compliance eBook. This will walk you through important sales tax guidelines like how sales tax is governed at the state level, sales tax liability varies from business to business, and how rates are determined by your buyer’s location.
Should your business charge sales tax on SaaS in Washington?
SaaS is generally always taxable in Washington.
Washington refers to SaaS as “remotely accessed software (RAS)” and says:
“RAS is prewritten software provided remotely. In other words, the buyer pays the seller for the right to access and use the prewritten software, which resides on the seller’s server or the server of a third party. (An Application Service Provider is an example of a business that may provide RAS.) RAS is classified as a retail sale for B&O tax purposes and is subject to sales or use tax. The purchase of prewritten software is exempt if the purchaser uses the software to provide RAS.”
In other words, prewritten software accessed remotely by the consumer is subject to sales tax in the state of Washington.
How can I learn more about SaaS taxability in Washington?
Washington State has provided quite a bit of information on SaaS taxability on their website. Check out their subject pages on:
You can also read Washington’s laws on the taxation of SaaS here.
How to automate sales tax when selling a SaaS product
Sales tax on SaaS is complicated, and that’s exactly why we built TaxJar.
With TaxJar’s Sales Tax API, all you need to do is let us know that you are selling a SaaS product by entering the product tax code that corresponds to your particular product. From there, we ensure that you collect the right amount of sales tax from every customer in every state where you are required to collect sales tax. If SaaS is non-taxable in a state, then your customer will not be charged.
Not only does TaxJar make sure you collect the right amount of sales tax, we automatically help you stay compliant in states where your business has economic sales tax nexus. On your behalf, we’ll track when your revenue or your number of transactions in a state exceeds that state’s threshold for economic nexus. No more guessing or digging into your books and each state’s individual nexus laws to determine when it’s time to start collecting sales tax.
Get started with TaxJar today!
Other SaaS Resources
- Washington Sales Tax Guide for Businesses
- Sales Tax by State: Is SaaS taxable?
- Are Digital Products Taxable?
- Sales Tax for SaaS Businesses Checklist
- On Demand Webinar: SaaS Sales Tax Bootcamp
And check out why Quimbee trusts TaxJar with their sales tax compliance.