Tax updates
Last Updated

Quarterly SaaS sales tax update: Q2 2022

Anrok | Streamlined sales tax for SaaS

Each quarter, Anrok looks at recent state sales tax legislation, decisions, and cases that might impact SaaS companies. Quarter 2 of 2022 has seen some notable action on sales tax law and administration in Texas, Washington, Maryland, and Mississippi.

A fine line for classifying SaaS products’ taxability

Texas issued two Private Letter Rulings on June 10 that help hone the distinctions between taxable information services and taxable data processing services, when it comes to educational products. The first ruling stated that subscriptions to a company’s online learning courses for academic subjects, professional topics, and vocational topics are non-taxable. Because the courses in question are interactive in nature, they were determined not to be merely the sale of information, which would qualify them as taxable information services. However, subscriptions for the company’s “teacher plan,” which provides teachers tools to manage lesson plans, grading, and other capabilities to integrate into their classrooms, were considered to be taxable data processing.

The second ruling also involved a SaaS educational product that allows professors to assign students virtual patient simulations, where the students interact and engage with the SaaS program. Interestingly, the Comptroller determined that despite some data processing elements, the interpretation of the Comptroller was to find them to be nontaxable. These two decisions appear to support the Texas Comptroller’s reluctance to find that educational use SaaS products are taxable.

Get tools, tips, and tax news in your inbox

Anrok | Streamlined sales tax for SaaS

Read now

Table of contents

Texas issued another Private Letter Ruling to taxpayers on April 29 (available publicly in June) clarifying its definition of taxable data processing. In this ruling, the Comptroller ruled on the taxability of payment card management services in which the taxpayer provides (but does not issue) cards that allow service providers to apply customized spending limits and other controls on debit and prepaid cards used in their businesses. The Comptroller concluded that the taxpayer’s service was a nontaxable electronic payment processing service rather than a taxable data processing service. The Comptroller noted that this supported the legislative intent to exclude payment processing products from the definition of taxable data processing.

On April 12, Washington also clarified what it considers to be data processing. Its Department of Revenue’s Administrative Review and Hearings Division ruled that a company’s account access services provided to credit unions constituted digital automated services, and were thus subject to sales tax. In this case, the taxpayer provided an online banking platform to member credit unions, which in turn provided those services to their individual credit union customers.

The petitioning company contended that its platform was not a digital automated service because it offered services that are included in the definition of nontaxable data processing services. The hearing officer disagreed with the taxpayer and concluded that the taxpayer was not selling a bundle of services that comprise a single large integrated service, making the transaction a retail sale of digital automated services.

SaaS taxability under review

In the final days of the 2021 legislative session, Maryland lawmakers concluded that B2B SaaS sold or licensed for business use in the state would no longer be taxable, effective July 1, 2022 (H.B. 791). Now, just over one year later, B2B SaaS is no longer taxable in Maryland. B2C SaaS and digital goods remain taxable in the state.

The Mississippi Taxation of Remote Internet-Based Computer Software Products and Services Study Committee, established by SB 2831, is actively conducting a review of the impact of making B2B SaaS products taxable in Mississippi. For help in understanding the potential effects any new regulation or tax policy would have on Mississippians, the Committee created an online survey to allow interested parties to answer questions and comment on the issues.

Looking towards the future

​​Say tuned next month for the most recent findings and recommendations from the Multistate Tax Commission on state sales taxation of digital products.

Get tools, tips, and tax news in your inbox

Start solving sales tax today

Talk to our team
Anrok | Streamlined sales tax for SaaS

Read now

Keep reading