Navigating Tax for IT Services and SaaS
The digital transformation that powers modern business also brings a tangle of new tax challenges. As more states look for revenue from the technology economy, they are expanding what’s considered taxable, and the rules vary widely from one state to another.
A Patchwork of New Rules
Part of the problem is states have taken vastly different approaches to taxing software and IT services. For example:
Maryland now imposes a 3% sales tax on a range of IT services and digital products, using NAICS codes to define which activities are taxable.
Ohio taxes essentially the flow of information from one computer to another via the internet under the category of “electronic information services.”
Washington taxes services transferred electronically as “digital automated services.”
The Kentucky Department of Revenue has taken the position that IT outsourcing services and support are taxable “extended warranty services.”
The problem for businesses is that none of these definitions line up neatly. What counts as a taxable service in one state might be excluded from taxation in another. As a result, many companies are either under-collecting tax and building exposure or over-collecting and frustrating customers.
Navigating Tax Rules in the Digital Economy
Nearly every business relies on cloud-based tools, subscription software, or outsourced IT services. Each purchase, renewal, or bundled agreement can carry different tax consequences depending on where the buyer and vendor are located, how the contract is structured, and how the product is delivered.
What seems like a small detail, whether a customer can download a report or access data through an interface, can determine whether the entire transaction is taxable.
How CSH Brings Clarity
At CSH, our State and Local Tax professionals help businesses make sense of this evolving landscape. We review your software and service agreements, assess how each state’s rules apply, and ensure your compliance systems capture the right data. Our team helps you identify exposure, correct overpayments, and establish a consistent, defensible approach to managing SaaS and IT service taxation.
Stay Ahead of the Change
As states continue to redefine what “digital” means for tax purposes, uncertainty will only increase. A proactive strategy today can prevent costly surprises tomorrow.
Connect with CSH’s SALT team to gain confidence that your software and IT services are treated correctly across every state where you operate.
