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New Jersey and the Taxation of Software Services


 New Jersey clouds and sales tax.

Are cloud computing services taxable? After much deliberation, Vermont determined that they are. In Idaho, they aren't.  And although the taxation of cloud computing services is controversial in Massachusetts, it may well be on its way to becoming a reality.

And New Jersey? A technical bulletin issued earlier this month by the New Jersey Division of Taxation explains the application of sales and use tax to cloud computing services (SaaS, PaaS and IaaS).

Certain services are subject to sales tax under New Jersey law. These include, but are not limited to:

  • Producing, fabricating, processing, installing, maintaining, repairing or storing tangible personal property or a specified digital product if it is not being purchased for resale or "held for sale in the regular course of business…."
  • Tanning services.
  • Massage services.
  • Information services.

Tax the SaaS

As noted by the New Jersey Division of Taxation, "[u]se of software application is not listed as a taxable service." Most charges for Software as a Service software (such as Salesforce and DeskAway), therefore, are not subject to sales tax.

However, some SaaS information services are taxable. These include "[c]harges for SaaS where the software is accessed and used as a tool for providing information to customers by an information service provider…."

Information defined

New Jersey law defines information as "the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller, and provided through any means or method, other than personal or individual information which is not incorporated into reports furnished to other people."

In sum, if SaaS is not providing information, it is not a taxable service. If it is providing information, it is taxable.

Don't Tax the PaaS or the IaaS

Both Platform as a Service (PaaS) and IaaS are not taxable services in New Jersey.

Are the services your business uses subject to sales tax? Are you sure?

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.