Software and sales tax

A state-by-state guide to the taxability of software

Sales tax is already complex. Getting it right for the software industry can be even more difficult.

Determining the correct amount of sales tax to apply to software sales is no simple task. While the variety of software categories impacts how states determine what’s taxable, the type of software, delivery method, and whether it’s a custom solution also contribute to a complex web of taxability rates and rules.

To help make sense of it all, we’ve outlined taxability by state for standard software categories — see the map and table below. Read our additional resources for more information on software and sales tax as well as recent changes you should be aware of.

Software taxability by state

The map below summarizes how states generally handle taxing software. Details in the table show how each state specifically addresses taxability based on the type of software and delivery method.

State-by-state software taxability rules

This information was compiled in July 2019. Because states constantly update and amend their sales and use tax laws, see each state’s tax authority website for the most up-to-date and comprehensive information.

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Although we hope you’ll find the information helpful, this guide does not offer a substitute for professional legal or tax advice. If you have questions about your tax liability or concerns about compliance, please consult your qualified legal, tax, or accounting professional. This information was compiled in July 2019. Because states constantly update and amend their sales and use tax laws, see each state’s tax authority website for the most up-to-date and comprehensive information.

Free sales tax resources for software companies

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The complexity of software taxability

Infographic showing how different types of software are taxed across different jurisdictions

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State	Prewritten software delivered on physical media	Prewritten software delivered electronically	Customization of canned software	Cloud services — Software as a Service (SaaS)	Custom software delivered on physical media	Custom software delivered electronically
Alabama	Taxable	Taxable	Exempt	Exempt	Taxable	Taxable
Arkansas	Taxable	Exempt	Exempt	Exempt	Taxable	Exempt
Arizona	Taxable	Taxable	Exempt	Taxable at Rental Rate	Exempt	Exempt
California	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Colorado	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Connecticut	Taxable	Taxable	Taxable at 1%	Taxable	Taxable at 1%	Taxable at 1%
District of Columbia	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable

State	Prewritten software delivered on physical media	Prewritten software delivered electronically	Customization of canned software	Cloud services — Software as a Service (SaaS)	Custom software delivered on physical media	Custom software delivered electronically
Florida	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Georgia	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Hawaii	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable
Iowa	Taxable	Taxable	Exempt	Taxable	Taxable	Taxable
Idaho	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Illinois	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
Indiana	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
Kansas	Taxable	Taxable	Taxable	Exempt	Exempt	Exempt
Kentucky	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt

State	Prewritten software delivered on physical media	Prewritten software delivered electronically	Customization of canned software	Cloud services — Software as a Service (SaaS)	Custom software delivered on physical media	Custom software delivered electronically
Louisiana	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable
Massachusetts	Taxable	Taxable	Exempt	Taxable	Exempt	Exempt
Maryland	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Maine	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
Michigan	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
Minnesota	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
Missouri	Taxable	Exempt	Taxable	Exempt	Exempt	Exempt
Mississippi	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable

State	Prewritten software delivered on physical media	Prewritten software delivered electronically	Customization of canned software	Cloud services — Software as a Service (SaaS)	Custom software delivered on physical media	Custom software delivered electronically
North Carolina	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
North Dakota	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
Nebraska	Taxable	Taxable	Taxable	Exempt	Taxable	Taxable
New Jersey	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt
New Mexico	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable
Nevada	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
New York	Taxable	Taxable	Exempt	Taxable	Exempt	Exempt
Oklahoma	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Pennsylvania	Taxable	Taxable	Taxable	Taxable	Exempt	Exempt
Puerto Rico	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable

State	Prewritten software delivered on physical media	Prewritten software delivered electronically	Customization of canned software	Cloud services — Software as a Service (SaaS)	Custom software delivered on physical media	Custom software delivered electronically
Rhode Island	Taxable	Taxable	Exempt	Taxable	Exempt	Exempt
South Carolina	Taxable	Exempt	Taxable	Taxable	Taxable	Exempt
South Dakota	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable
Tennessee	Taxable	Taxable	Taxable	Taxable	Taxable	Taxable
Texas	Taxable	Taxable	Taxable	80% taxable	Taxable	Taxable
Utah	Taxable	Taxable	Exempt	Taxable	Exempt	Exempt
Virginia	Taxable	Exempt	Exempt	Exempt	Exempt	Exempt
Vermont	Taxable	Taxable	Exempt	Exempt	Exempt	Exempt