Welcome to Anrok’s mid-year sales tax update for 2024. Our team of tax experts has compiled the most significant developments in SaaS taxation that have occurred in the first half of this year, giving you the insights you need to navigate the ever-evolving landscape of software sales tax.
The first half of 2024 has seen continued efforts by both U.S. states and international jurisdictions to capture revenue from the digital economy. Several states have expanded their tax laws to include SaaS and digital goods. Globally, we've observed new VAT requirements and rate changes, particularly within the European Union.
These changes underscore the increasing complexity of sales tax compliance for SaaS businesses operating across multiple jurisdictions. As we move into the second half of 2024, it's more critical than ever for software companies to stay informed and proactive in their tax strategies.
Read on for a detailed breakdown of these updates and their implications for your business. If you need assistance navigating these changes, don't hesitate to reach out to our team of experts.
The bottom line
Here are the key changes you need to know from the first half of 2024, and their implications for SaaS companies selling across state or international borders:
- Vermont will begin taxing SaaS as of July 1, 2024, expanding the definition of "tangible personal property" to include remotely accessed software.
- Texas is modernizing its sourcing rules for software and digital services, effective September 1, 2024, basing transactions on where the purchaser receives the products.
- Tennessee has adopted Streamlined Sales Tax (SST) Sourcing Provisions, effective July 1, 2024, to help interstate sellers determine which jurisdiction to pay tax toward.
- The EU has published an updated draft of the ViDA package, introducing e-invoicing requirements for cross-border businesses (effective 2030) and expanding the OSS regime eligibility.
- Several countries, including Senegal and EU member states, have enacted new VAT requirements or rate changes affecting digital service providers.
Line items
1. Vermont taxes SaaS, while Georgia maintains data center exemptions
The brief: Vermont has expanded its sales tax to cover Software as a Service (SaaS) effective July 1, 2024. Meanwhile, Georgia's governor vetoed a bill that would have paused data center sales tax exemptions, maintaining the state's business-friendly stance toward tech infrastructure.
The backstory: Vermont's H.B. 887, initially vetoed by the governor but later passed through a legislative override, expands the definition of "tangible personal property" to include prewritten computer software "regardless of the method in which the prewritten computer software is paid for, delivered, or accessed." This effectively repeals the 2015 exemption for remotely accessed software.
In Georgia, Governor Kemp vetoed H.B 1192, which would have paused data center sales tax exemptions from July 1, 2024, through June 30, 2026. The governor cited concerns about undermining recent extensions and discouraging investments in infrastructure and job development.
The bottom line: SaaS providers with customers in Vermont will need to prepare for sales tax collection starting July 1. Companies operating or planning data centers in Georgia can continue to benefit from existing tax exemptions, maintaining the state's attractiveness for tech infrastructure investments.
2. Texas and Tennessee update sourcing rules for digital products
The brief: Texas will modernize its sourcing rules for software, digital services, and computer programs delivered electronically, effective September 1, 2024. Tennessee has adopted the Streamlined Sales Tax (SST) Sourcing Provisions, effective July 1, 2024.
The backstory: Texas's new rules will source transactions based on where the purchaser receives the products. For individuals, this will be the end-user address, while for businesses, it will be based on business records. Multiple delivery locations will require apportionment of the charge.
Tennessee's adoption of SST Sourcing Provisions includes destination sourcing for interstate sales of services related to tangible personal property (including computer software) and for leased property (including licensed software) that moves outside of Tennessee during the lease period. For marketplace facilitator sales, sourcing will be based on the purchaser's ship-to address.
The bottom line: SaaS companies selling into Texas and Tennessee will need to update their systems and processes to comply with these new sourcing rules. This may require changes to how you determine and collect sales tax, particularly for customers with multiple locations or for marketplace sales.
3. New York clarifies taxation of bundled services, Virginia maintains status quo
The brief: New York's Division of Tax Appeals has ruled that Facilities Management Services are subject to sales tax when sold together with taxable products like software for a single charge. Meanwhile, Virginia concluded its legislative session without extending retail sales tax to digital goods and services.
The backstory: New York's determination (DTA Nos. 829500 and 829501) highlights the potential tax implications of bundling services with taxable products. This ruling could significantly impact the cost of bundled offerings, given New York's average tax rate of 8% and common rate of 8.87%.
Virginia's governor signed a two-year budget with no tax changes, declining to expand the tax base to include "digital personal property" and "taxable services" such as software application services, computer-related services, website hosting and design, data storage, and streaming services.
The bottom line: SaaS companies operating in New York should review their bundled offerings to assess potential sales tax liability. Those selling into Virginia can maintain their current tax strategies for digital goods and services, but should remain vigilant for future legislative changes.
4. EU updates ViDA package, introduces new e-invoicing requirements
The brief: On May 8, 2024, the European Commission published an updated draft of the ViDA package, introducing significant changes for businesses operating cross-border in the EU.
The backstory: The updated ViDA package includes two key provisions of interest to SaaS companies: 1) The introduction of e-invoicing requirements for businesses operating cross-border in the EU, effective in 2030; and 2) Expansion of the list of EU sellers eligible to register under the One-Stop Shop (OSS) regime.
These changes aim to streamline VAT compliance and reduce the VAT gap across the EU.
The bottom line: While the e-invoicing requirement won't take effect until 2030, SaaS companies operating in the EU should start preparing for this significant change. The expansion of OSS eligibility may offer simplified compliance options for some businesses, potentially reducing administrative burdens.
5. Senegal introduces remote-seller requirements, EU countries adjust VAT rates
The brief: Senegal has enacted new VAT requirements for non-resident digital service providers, while several EU countries have made notable VAT rate changes.
The backstory: Effective July 1, 2024, non-resident providers of digital services to B2C consumers in Senegal are required to register for VAT, with an 18% rate. B2B supplies by foreign sellers are subject to the reverse charge mechanism.
In the EU:
- Ireland has changed the VAT rate for e-books and audiobooks to 0% from January 1, 2024.
- Luxembourg's temporary VAT rate reduction ended on December 31, 2023, with rates returning to their original levels of 17%, 14%, and 8%.
- Estonia increased its VAT rate from 20% to 22% effective January 1, 2024.
The bottom line: SaaS companies providing services to customers in Senegal will need to assess their VAT obligations under the new rules. Those operating in the EU should update their systems to reflect the various rate changes, ensuring accurate VAT collection and remittance.
Forecasting
As we move into the second half of 2024, here are some key trends to watch:
- More U.S. states may follow Vermont's lead in expanding their tax base to include SaaS and digital goods. Companies should monitor legislative sessions closely.
- The EU's focus on e-invoicing and expanding the OSS regime suggests a continued push towards digital tax administration. Expect more countries to adopt similar measures.
- As digital business models evolve, tax authorities may seek to clarify or expand definitions of taxable digital services. Stay alert for new interpretations or guidance from tax authorities.
- The global trend towards real-time reporting and e-invoicing is likely to accelerate, potentially requiring significant changes to business processes and systems.
- With increasing complexity in cross-border digital taxation, we may see more international cooperation and standardization efforts to simplify compliance for businesses.
Remember, staying informed and proactive is key to navigating the complexities of SaaS sales tax. If you need help understanding these changes or managing your company's sales tax compliance, don't hesitate to reach out to the Anrok team.
