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Kansas Opinion SaaS is Non-Taxable


In response to a question posed by a group of Kansas physicians on the taxability of hosted software, Kansas Department of Revenue provided the following definition of hosted software:

“Hosted software is software that is installed, hosted and accessed entirely from a remote server or location. Hosted software is hosted and managed by the software manufacturer or a third-party vendor. Users can access it globally through the Internet. Hosted software is also known as software as a service (SaaS), a cloud computing service model.”

In response to whether hosted software is taxable or can be exempt, the answer was “no” to both. According to the letter, SaaS products are not considered taxable items and therefore “…the charges for hosted services aren’t ‘exempted’ or ‘excepted’ from sales tax because tax isn’t imposed on the service charges in the first place. Since tax has never been imposed on the services, tax payment and collection duties never exist. Since tax payment and collection duties never exist, there is nothing to carve out a tax exemption from or to draft an exemption for.”

In a nutshell: “Charges for hosted software services are not taxable…because the software that is installed on a remote server isn’t delivered to subscribers or installed on their computers. The service provider has title and possession of the software. The department has ruled that any software that is delivered to a service subscriber that allows the subscriber access to the provider’s remote application software is part of the non-taxable service. Such software is not taxable as a sale of prewritten software so long as the software is not billed to subscriber as a separate line item charge.”

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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.”