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.