California and Colorado highlight a growing trend
The taxation of digital goods and SaaS is becoming one of the fastest-evolving areas of US sales tax.
For years, many states exempted cloud software and other digital products because their sales tax systems were designed around tangible goods. But since 2025, a growing number of states have expanded their sales tax base to capture SaaS, downloaded software, streaming services and other digital products.
- California’s decision to tax prewritten software and SaaS from 1 January 2027 is the highest-profile example.
- Colorado adopted legislation from January 2027 to tax electronically delivered software, SaaS and mobile apps.
No national harmonisation
Unlike VAT systems, there is no federal sales tax or common definition of digital goods in the United States. Each state decides whether software, SaaS and digital services are taxable and how they should be classified.
US sales tax SaaS & digital services
| State | Digital goods | SaaS | Other digital services | Recent developments | Comments |
| Alabama | ✓ | Mixed | Mixed | None | Digital products generally taxable. |
| Alaska | No state tax | No state tax | Local only | Local sales taxes expanding | Local jurisdictions may tax digital sales. |
| Arizona | ✓ | ✓ | Mixed | None | Cloud software generally taxable. |
| Arkansas | ✓ | ✓ | Mixed | None | Broad digital taxation. |
| California | 2027 | 2027 | Limited | Digital tax proposals continue | Electronic delivery generally exempt. |
| Colorado | ✓ | Mixed | Mixed | Home-rule developments | Local city rules can differ significantly. |
| Connecticut | ✓ | ✓ | Mixed | Reduced SaaS rate retained | Complex rules depending on customer and licence type. |
| Delaware | No sales tax | No sales tax | No sales tax | — | No statewide sales tax. |
| Florida | ✗ | ✗ | Communications only | None | Most digital products exempt. |
| Georgia | Mixed | ✗ | Mixed | None | Digital downloads more likely taxable than SaaS. |
| Hawaii | ✓ | ✓ | ✓ | — | General Excise Tax applies. |
| Idaho | ✓ | Mixed | Mixed | None | Software generally taxable. |
| Illinois | Mixed | Mixed | Mixed | Leasing rules updated | Chicago has separate cloud tax rules. |
| Indiana | ✓ | ✓ | Mixed | None | Broad taxation. |
| Iowa | ✓ | ✓ | Mixed | None | One of the broadest regimes. |
| Kansas | ✓ | ✓ | Mixed | None | Broad taxation. |
| Kentucky | ✓ | ✓ | Mixed | Digital expansion continues | Increasing focus on digital economy. |
| Louisiana | ✓ | ✓ | Mixed | Digital products taxed from 2025 | Significant expansion. |
| Maine | ✓ | ✓ | Mixed | Digital audiovisual services added | Further expansion from 2026. |
| Maryland | ✓ | ✓ | ✓ | IT/data services added | One of the broadest digital tax regimes. |
| Massachusetts | ✓ | ✓ | Mixed | None | Prewritten software taxable. |
| Michigan | ✓ | ✗ | Mixed | None | SaaS generally exempt. |
| Minnesota | ✓ | ✓ | Mixed | None | Broad digital taxation. |
| Mississippi | ✓ | ✓ | Mixed | None | Broad taxation. |
| Missouri | ✗ | ✗ | Limited | None | Conservative approach. |
| Nebraska | ✓ | ✓ | Mixed | None | Broad taxation. |
| Nevada | ✗ | ✗ | Limited | None | SaaS generally exempt. |
| New Hampshire | No sales tax | No sales tax | No sales tax | — | No statewide sales tax. |
| New Jersey | ✓ | ✓ | Mixed | None | Cloud software taxable. |
| New Mexico | ✓ | ✓ | ✓ | — | Gross Receipts Tax. |
| New York | ✓ | ✓ | Information services taxable | None | Comprehensive digital tax regime. |
| North Carolina | ✓ | ✓ | Mixed | None | Broad taxation. |
| North Dakota | ✓ | ✓ | Mixed | None | SST member. |
| Ohio | ✓ | Mixed | Mixed | None | Depends on transaction structure. |
| Oklahoma | ✗ | Mixed | Limited | None | Digital downloads often exempt despite SaaS complexity. |
| Oregon | No sales tax | No sales tax | No sales tax | — | No statewide sales tax. |
| Pennsylvania | ✓ | ✓ | Mixed | None | Remotely accessed software taxable. |
| Rhode Island | ✓ | ✓ | Mixed | None | Broad taxation. |
| South Carolina | Mixed | Mixed | Streaming taxable | None | Streaming taxed as communications service. |
| South Dakota | ✓ | ✓ | Mixed | None | Strong post-Wayfair enforcement. |
| Tennessee | ✓ | ✓ | Mixed | None | Broad taxation. |
| Texas | ✓ | ✓ | Data processing taxable | Expanded data processing rules | 20% exemption for many data processing services. |
| Utah | ✓ | ✓ | ✓ | Streaming clarified | Digital content taxation expanded. |
| Vermont | ✓ | ✓ | Mixed | None | Broad taxation. |
| Virginia | ✗ | ✗ | Limited | Bills proposed | Digital products generally exempt. |
| Washington | ✓ | ✓ | ✓ | 2025 expansion | Major expansion into digital and business services. |
| West Virginia | Mixed | ✓ | Mixed | None | Streaming and custom software differ. |
| Wisconsin | ✓ | ✓ | Mixed | None | Broad taxation. |
| Wyoming | ✓ | ✓ | Mixed | None | Broad taxation. |
Some states treat SaaS as taxable software. Others classify it as a service. Several distinguish between downloaded software and remotely accessed software, while some continue to exempt both.
Variances on sales tax for streaming, cloud, info and processing
States differ not only on whether digital goods or SaaS are taxable, but also on the treatment of streaming services, cloud computing, information services and data processing. Home-rule jurisdictions in states such as Colorado can add a further layer of complexity by applying their own local rules.
For businesses selling digital products nationally, the challenge extends beyond identifying where economic nexus exists. They must also determine how each state classifies the products or services they supply.
