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Iowa Makes SaaS Taxability Determination

In Iowa, the question of the taxability of hosted software came up in a recent letter request for ruling. According to Iowa Code section 423.3(67), Software-as-a-Service products are considered exempt if it falls into the following description: “…the transaction is delivered to the purchaser digitally, electronically, or utilizing cable, or by radio waves, microwaves, satellites, or fiber optics.”

Per the letter ruling, shown on TaxAnalysts.com, “…the hosted software the Taxpayer provides is not delivered in hard copy to the subscriber; instead, the software is only available for use electronically. Therefore, according to Iowa Code section 423.3(67), a taxable sale of property does not occur.”

In addition, according to Iowa Code, “…only enumerated services are subject to tax,” and software training is not enumerated. “Therefore, regardless of whether the training is delivered in person or via the Internet, the training is not subject to sales tax.”

NOTE: Letters rulings are specific to a question posed by a unique business. Always consult your tax professional or the state where you have a question in order to determine the exact rule/law of the state regarding taxability.

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Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”