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California: SaaS is not a taxable service. However, software or information that is delivered electronically is exempt. The ability to access software from a remote network or location is exempt. Under California sales and use tax law, there must be a transfer of TPP, in order to have a taxable event.
Sales of custom software, personal and professional services, and reports of individual information are generally exempt from Massachusetts sales and use taxes.
Sales and use tax does not apply to SaaS, which California defines as, A customer gains access to software on a remote network without receiving a copy of the software, while the seller retains exclusive possession and control of it. While California has not specifically codified the SaaS revenue stream, the state
Sales of prewritten computer software, regardless of the method of delivery, are subject to the Massachusetts sales tax. SaaS, cloud computing and electronically downloaded software are all taxable in the state because the object of the transaction is acquiring the right to use the software.
A contract for optional hardware maintenance is not a contract for the sale of tangible personal property and no sales or use tax applies to the charge.
Canned software, also referred to as prewritten, "shrink-wrapped" or standards software, is computer software that is designed for and distributed "as is" for multiple persons who can use it without modifying its code and which is not otherwise considered custom software.
The majority of states which have addressed the issue and have concluded that software (at least unbundled software) is not tangible personal property for ad valorem tax purposes and therefore is generally not taxable.
Sales tax applies to the retail sales of hardware, miscellaneous supplies, repair parts, and pre-written and sub-licensed software. Sales tax also applies if the client is required to purchase a maintenance contract or the hotline support service.
In most states, where services aren't taxable, SaaS also isn't taxable. Other states, like Washington, consider SaaS to be an example of tangible software and thus taxable. Just like with anything tax related, each state has made their own rules and laws.
Only two states Tennessee and Vermont have specific statutes in place to address SaaS transactions and sales tax.