Guide to the Taxability of Computer Software Delivered Electronically in the US
What is computer software delivered electronically from a US sales tax perspective?
Computer software delivered electronically refers to software that is transferred or made available to the customer through electronic means, without any physical transfer of tangible media. This generally includes software that is downloaded from the internet or delivered via email. If the transfer is done using any tangible property (e.g. a pen drive or CD-rom), then the supply is generally not considered delivered electronically.
Certain states also interpret this to include remotely-accessed software (e.g. SaaS), while others require that the software is downloaded. For more information on the taxability of SaaS in the US, please refer to the Fonoa guide to Sales Tax on SaaS.
Custom or prewritten software?
States commonly separate computer software into two categories; custom software or prewritten (aka “canned”) software.
Custom software refers to software that is designed, developed, and tailored to meet the specific needs of a particular customer. It is typically created by software developers or consultants based on the customer's requirements. Custom software is often considered a service rather than a tangible product, and its sales tax treatment is therefore often distinct from prewritten software.
Prewritten software refers to software that is developed and marketed for general use and is not specifically designed or modified for a particular customer. It is typically available for purchase off-the-shelf or through online platforms. Prewritten software delivered electronically is often considered tangible personal property and is therefore frequently taxable.
Which states require sales tax to be charged on computer software delivered electronically?
Each state has its own rules and regulations regarding the taxation of computer software delivered electronically:
Alabama
Custom and prewritten computer software delivered electronically are taxable.
Alaska
Custom and prewritten computer software delivered electronically are taxable in local jurisdictions that have instituted a sales tax.
Arizona
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Arkansas
Custom and prewritten computer software delivered electronically are NOT taxable.
California
Custom and prewritten computer software delivered electronically are NOT taxable.
Colorado
Custom and prewritten computer software delivered electronically is NOT taxable on the state-level and in most home rule cities and counties.
Some home rule jurisdictions may have different rules surrounding the taxability of these supplies.
Connecticut
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Note: A reduced rate of 1% may apply when prewritten computer software is sold to a business for use by that business.
DC
Custom and prewritten computer software delivered electronically are taxable.
Delaware
No sales tax.
Florida
Custom and prewritten computer software delivered electronically are NOT taxable.
Georgia
Custom and prewritten computer software delivered electronically are NOT taxable.
Hawaii
Custom and prewritten computer software delivered electronically are taxable.
Idaho
Custom and prewritten computer software delivered electronically are NOT taxable.
Illinois
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Indiana
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Iowa
Custom and prewritten computer software delivered electronically are taxable.
Note: Prewritten computer software delivered electronically to “commercial enterprises” is exempt under certain conditions.
Kansas
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Kentucky
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Louisiana
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Maine
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Maryland
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Massachusetts
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Michigan
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Minnesota
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Mississippi
Custom and prewritten computer software delivered electronically are taxable.
Missouri
Custom and prewritten computer software delivered electronically are NOT taxable.
Montana
No sales tax
Nebraska
Custom and prewritten computer software delivered electronically are taxable.
Nevada
Custom and prewritten computer software delivered electronically are NOT taxable.
New Hampshire
No sales tax
New Jersey
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Note: Prewritten software delivered electronically to a business is exempt under certain conditions.
New Mexico
Custom and prewritten computer software delivered electronically are taxable.
New York
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
North Carolina
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
North Dakota
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Ohio
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Oklahoma
Custom and prewritten computer software delivered electronically are NOT taxable.
Oregon
No sales tax.
Pennsylvania
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Puerto Rico
Custom and prewritten computer software delivered electronically are taxable.
Rhode Island
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
South Carolina
Custom and prewritten computer software delivered electronically are NOT taxable.
South Dakota
Custom and prewritten computer software delivered electronically are taxable.
Tennessee
Custom and prewritten computer software delivered electronically are taxable.
Texas
Custom and prewritten computer software delivered electronically are taxable.
Utah
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Vermont
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Virginia
Custom and prewritten computer software delivered electronically are NOT taxable.
Washington
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
West Virginia
Custom and prewritten computer software delivered electronically are taxable.
Wisconsin
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
Wyoming
Custom software delivered electronically is NOT taxable, while prewritten computer software delivered electronically is taxable.
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