Is SaaS taxable in New York

Is SaaS taxable in New York? 2025

As businesses increasingly move to the cloud, Software as a Service (SaaS) has become a central part of daily operations. But with this shift comes an important question: Is SaaS taxable in New York? The answer isn’t always clear, as tax laws surrounding digital products and services can be complex. In New York, sales tax applies to many services, but there are exceptions—especially for SaaS providers. This article will clarify how New York handles the taxation of SaaS, including which services are taxed, the impact of recent changes in 2025, and what businesses need to know to stay compliant. By the end, you’ll better understand how to navigate SaaS tax in New York and avoid surprises.

The Basics of New York Sales Tax: An Overview

What is Sales Tax in New York?

Sales tax in New York is a state-imposed levy that businesses collect from customers on the sale of certain goods and services. The general sales tax rate in New York is 8.875%, which includes the state tax of 4% and additional local taxes from counties and cities. This rate applies to most tangible personal property, such as clothing and electronics, and to certain services that New York has determined are taxable.

However, not all services are subject to sales tax. Some services—such as those related to medical, educational, and professional services—are generally exempt. Understanding how sales tax applies can be more complex for businesses offering digital services, like Software as a Service (SaaS).

Is SaaS Considered a Service or a Product?

Regarding SaaS in New York, the classification of the product as either a “service” or a “product” is key in determining its taxability. In general, New York’s tax code distinguishes between goods and services based on how they are used and consumed by the buyer.

  • Goods are tangible, physical items that can be touched and moved.
  • Services, on the other hand, are intangible, meaning they involve an action or a benefit provided without transferring physical goods.

To determine if SaaS is taxable, we must evaluate whether it is a service or a product. Since SaaS involves delivering software over the internet without physically transferring goods, it is typically classified as a service. However, SaaS services are not automatically exempt from sales tax in New York, and specific conditions determine whether the tax applies.

Goods vs Services in New York Tax Code

FeatureGoodsServices
DefinitionTangible items, such as products you can touch or move.Intangible benefits or actions, like consulting or digital services.
TaxabilityMost goods are taxable unless exempt (e.g., food, clothing, etc.).Only certain services are taxable, depending on their nature.
ExamplesElectronics, clothing, furniture.SaaS, legal consultations, financial services.
Physical TransferRequires a physical transfer of the item.No physical transfer is involved.
New York Tax Code StatusSubject to sales tax unless exempt.Generally not taxable, unless specified (e.g., SaaS may be taxable).
Taxation of SaaS in New York

Taxation of SaaS in New York in 2025: What’s Changing?

Historical Context: How SaaS Was Taxed in New York

For years, the taxation of Software as a Service (SaaS) in New York was ambiguous. Initially, New York did not treat SaaS as a taxable service under state sales tax law. However, as the digital economy grew and more businesses adopted cloud-based solutions, the state’s tax regulations began to evolve. In 2018, New York clarified its stance by ruling that certain digital products and services, like SaaS, could be subject to sales tax if they provided tangible benefits or were accessed remotely. This shift started a wave of questions among SaaS providers and customers: What services are taxable, and what are the criteria for exemption?

Recent Changes in Tax Law (2025 Update)

In 2025, New York introduced new updates to its tax regulations, further refining the treatment of SaaS products.

  • Expansion of Taxable Services: New York’s state government expanded the definition of taxable digital products. Under these new guidelines, SaaS is more clearly categorized as taxable unless the service qualifies for an exemption.
  • Taxable SaaS: The state’s updated tax law now applies to SaaS solutions provided on a subscription basis. If the service is considered a “cloud-based” solution (accessed through the internet), it will generally be taxable.
  • Exemptions: Some SaaS products, especially those purely used for personal or non-commercial purposes, may still be exempt from sales tax. However, businesses providing these services should verify whether they qualify for such exemptions.

Official Statistics from NY State Department of Taxation and Finance

  • 2025 SaaS Taxable Revenue: According to the NY State Department of Taxation and Finance, SaaS providers are expected to contribute over $300 million in tax revenue in 2025. This growth highlights the increasing reliance on cloud-based software solutions and the state’s commitment to taxing the digital economy.
  • Tax Revenue Breakdown: In the first quarter of 2025, the state reported an 18% increase in SaaS-related tax revenue compared to the same period in 2024.
YearSaaS Taxable Revenue (in millions)Percentage Change
2023$250N/A
2024$28012%
2025$30018%

Timeline of SaaS Tax Law in New York

To help visualize the progression of SaaS tax law in New York, here’s a timeline of key events:

YearEvent
2018New York clarifies SaaS taxation with initial guidelines.
2020Expanded definitions of taxable digital products.
2023Court ruling affirms SaaS is taxable if it provides tangible benefits.
2025New regulations officially classify subscription-based SaaS as taxable.

Factors That Influence SaaS Taxability in New York

Location-Based Taxation

Sales tax in New York isn’t always uniform across the state. While New York City and surrounding areas tend to have higher tax rates, the situation can vary in counties and cities. The applicable tax rate for SaaS providers could change depending on where the customer is located.

  • New York City: Businesses in NYC must charge the full 8.875% sales tax on taxable SaaS transactions.
  • Upstate New York: Some upstate counties, like Erie or Onondaga, have different rates, usually around 8% or lower.

Understanding where the customer resides helps SaaS businesses determine whether and how much tax to apply. This is where nexus rules come into play.

Nexus Rules for SaaS Providers

A SaaS provider must collect sales tax if they have a “nexus” in New York. Nexus means a connection or presence in the state that is significant enough to require sales tax collection. This could include having a physical presence, such as an office or employees, or reaching certain sales thresholds.

  • In-State Nexus: A SaaS company with an office, warehouse, or employees in New York must collect sales tax on all taxable sales within the state.
  • Out-of-State Nexus: Companies based outside of New York must still collect sales tax if they meet certain sales thresholds, such as making over $500,000 in sales to New York residents.

Usage vs. Ownership

One important factor that affects SaaS taxability in New York is whether the service is a subscription or a perpetual license.

  • Subscription Model: In a typical subscription-based SaaS model, where customers pay for access over some time, the service is generally considered taxable under New York law.
  • Perpetual License: If the customer buys a perpetual license to use the software rather than subscribing, this might be treated differently regarding taxability. New York generally does not impose a sales tax on the sale of tangible personal property, which includes certain licenses; SaaS delivered via a subscription may be subject to tax.
How SaaS Taxation Affects New York-Based Businesses

How SaaS Taxation Affects New York-Based Businesses

Do New York Businesses Need to Collect Tax on SaaS?

Determining when to collect sales tax on SaaS for New York-based businesses can be tricky. The general rule is that if the SaaS is considered a taxable service, the business must collect sales tax from the customer.

Practical Scenarios:

  1. When to charge tax:
    • A New York-based business offering a subscription to a SaaS product (e.g., CRM software) to customers in New York must charge sales tax.
    • SaaS products that facilitate the sale of physical goods (like an eCommerce platform) may also be taxable.
  2. When tax is exempt:
    • SaaS used exclusively for personal use (not business) may be exempt.
    • Some SaaS providers may qualify for tax exemptions under certain circumstances, such as when the service is provided to educational institutions or non-profit organizations.

Taxable vs. Exempt SaaS in New York

SaaS TypeTaxabilityNotes
CRM Software (for businesses)TaxableTypically subject to sales tax in NY
Accounting Software (for personal use)ExemptIf not used for business purposes
SaaS for Educational InstitutionsExemptSales to qualified educational entities
Project Management SaaS (for business)TaxableSubject to sales tax in New York

Common SaaS Exemptions in New York

Certain SaaS products can be exempt from New York sales tax under specific circumstances. Some of the most common exemptions include:

  • Educational Exemption: SaaS products used for educational purposes, such as online learning platforms, may be exempt if provided to schools, colleges, or universities.
  • Non-Profit Exemption: Non-profit organizations may qualify for an exemption if they use SaaS for charitable or educational purposes.
  • Research and Development Exemption: Some SaaS used for scientific research or experimentation might be exempt from sales tax.

The Impact of SaaS Taxation on Consumers

Consumer Costs and Pricing:

New York’s SaaS tax directly impacts the final price for both consumers and businesses. If SaaS providers are required to collect sales tax, they will likely pass this cost on to customers. As a result, businesses may see higher operating costs, which could translate into increased subscription prices. Consumers, particularly businesses using SaaS products for daily operations, might be paying more than before the tax was implemented. For individual consumers, especially those subscribing to personal-use software, the price increases could be less significant but still noteworthy over time. It’s important for both businesses and individuals to understand how these costs will be calculated and how they might change in 2025 and beyond.

How to Calculate Sales Tax on SaaS for Consumers:

Calculating SaaS sales tax in New York is straightforward, though it does require attention to detail. Follow these steps:

  1. Identify the SaaS Subscription Cost: Determine the service’s total monthly or annual subscription fee.
  2. Check the Sales Tax Rate: The sales tax rate in New York is generally 4% for the state, but local rates might add another 4.875%, depending on your location. For example, New York City has a combined state and local tax rate of 8.875%.
  3. Multiply by the Sales Tax Rate: Multiply the subscription cost by the sales tax rate. For example, if your subscription is $100 and the local tax rate is 8.875%, the sales tax would be $8.88.
  4. Add the Sales Tax to the Total Cost: Add the calculated sales tax to the subscription cost to get your final price. In the example above, your total price would be $108.88.

Practical Guide: How to Ensure Compliance with SaaS Tax Laws in New York

Registering for Sales Tax Collection:

To comply with New York’s SaaS tax laws, providers must register for sales tax collection if their services are taxable. Here’s how to do it:

  1. Create a New York State Business Account: First, you must create an account with the New York State Department of Taxation and Finance (NYSDTF). This can be done online through their website.
  2. Apply for a Sales Tax Permit: After creating an account, apply for a sales tax permit. This will allow you to collect sales tax from your customers legally.
  3. Display Sales Tax on Invoices: As a registered business, you must include the sales tax amount on all invoices. This ensures your customers are aware of the tax charges.
  4. Stay Current on Tax Rates: Tax rates vary by location, so regularly check the New York State Department of Taxation and Finance website for any rate changes.

Tips for Managing Tax Filings, Reporting, and Payment Schedules:

  • Track Sales Accurately: Keep detailed records of all sales and tax amounts collected.
  • File Sales Tax Returns: Depending on your revenue, you may need to file monthly, quarterly, or annually. Use the NYSDTF online portal to submit returns.
  • Pay Tax on Time: Avoid penalties by making payments on time. Set up automatic reminders for filing deadlines.

Common Mistakes to Avoid:

Here are some common mistakes SaaS businesses make regarding New York sales tax:

  • Not registering for sales tax: Failure to register can result in penalties. Registration is mandatory if you’re offering taxable SaaS in New York.
  • Incorrectly applying the tax rate: Sales tax varies by locality. Ensure you use the correct local tax rate based on the customer’s location.
  • Not keeping proper records: In an audit, having accurate sales records is crucial.
  • Failing to remit collected tax: Once you collect sales tax, you must remit it to the state according to your filing schedule.
  • Misclassifying non-taxable services: Some SaaS offerings may be exempt from tax, so classify your services correctly.

How to Fix These Mistakes and Avoid Penalties:

  • Register promptly if you haven’t already.
  • Double-check tax rates for different regions in New York.
  • Keep detailed records of sales, tax amounts, and customer locations.
  • File returns and remit payments on time to avoid interest and penalties.
  • Consult a tax professional if you’re unsure about tax classification.

Is SaaS Taxable in New York for Out-of-State Companies?

Nexus Rules:

Out-of-state SaaS providers who sell to New York customers must be aware of the “economic nexus.” This means that if a business reaches a certain threshold of sales or transactions in New York, it must collect and remit sales tax on sales made to New York residents or businesses.

  • Threshold for Nexus: If an out-of-state business makes more than $500,000 in sales or 100 transactions in New York in the past year, it is considered to have economic nexus in the state and must collect sales tax.
  • How Nexus Affects Tax Collection: If a business has a nexus in New York, it must collect the appropriate sales tax from customers in the state, regardless of where the business is located.

Case Example:

Let’s look at two companies, one based in New York and one out of state:

  1. New York-based SaaS Company: This company operates in New York and collects sales tax on all taxable SaaS subscriptions sold to customers within the state. They file taxes quarterly and remit the collected tax directly to the New York State Department of Taxation and Finance.
  2. Out-of-State SaaS Company: This company is based in California but has significant sales in New York. As a result, it meets the $500,000 sales threshold and is required to collect sales tax from New York customers. The company must follow New York’s tax rules despite being located in another state.

Based on their sales activities within New York, both companies are subject to the same tax rates and filing requirements.

Future of SaaS Taxation in New York

Potential Changes in 2026 and Beyond:

As New York adapts to the growing digital economy, potential changes to SaaS tax laws could be on the horizon. Experts predict that the state may update its tax policies in the coming years to address emerging trends and better align with evolving technologies.

  • Potential for Tax on More Services: In the future, New York might expand its definition of taxable services to include additional cloud-based services beyond SaaS, affecting everything from platform-as-a-service (PaaS) to infrastructure-as-a-service (IaaS).
  • Adjustments to Nexus Rules: New York may revise the thresholds for economic nexus, lowering the sales or transaction requirements and making it easier for out-of-state companies to become liable for collecting sales tax.

Expert Opinions: Tax professionals suggest that businesses should stay informed about legislative changes and regularly review their tax compliance strategies to adapt to potential new rules.

Frequently Asked Questions

Frequently Asked Questions

Is SaaS tax-free in New York?

SaaS is generally not tax-free in New York. The state considers SaaS a taxable service if it involves the transfer of tangible personal property or prewritten software. However, the taxability depends on whether the software is accessed remotely or installed on the user’s computer.

Do I need to collect sales tax on SaaS in New York?

Yes, if you provide SaaS to customers in New York, you must collect sales tax. This applies even if the software is accessed online and not downloaded as long as it meets certain New York tax law criteria.

Are all digital products taxable in New York?

Not all digital products are taxable in New York. Digital goods such as digital books, music, and movies can be exempt, but services like SaaS and downloadable software typically are taxable. To determine tax liability, it’s essential to check the specific product or service type.

How do I register as a SaaS provider for New York sales tax?

To register for New York sales tax, visit the New York State Department of Taxation and Finance website. You can register online through the “Sales Tax Web File” portal. Once registered, you must begin collecting and remitting sales tax on applicable sales.

What is the New York State sales tax rate for SaaS?

The general sales tax rate for SaaS in New York is 4%, though local taxes may apply, increasing the total rate to 8.875%. Always check the local tax rates for your specific location within the state.

Should I charge sales tax for SaaS services sold to out-of-state customers?

No, if your SaaS is sold to out-of-state customers, you typically do not need to charge New York sales tax. However, your customers may be responsible for paying sales tax in their state if applicable.

Are subscription fees for SaaS taxable in New York?

Yes, subscription fees for SaaS are subject to sales tax in New York. This includes ongoing charges for access to software services, whether billed monthly, quarterly, or annually.

Can I avoid paying sales tax on SaaS if I buy it for resale?

Yes, if you purchase SaaS for resale, you can avoid paying sales tax by providing a valid resale certificate to the seller. This allows you to purchase the software without tax, provided you resell the service to your customers.

How do SaaS providers in New York manage sales tax changes in 2025?

SaaS providers in New York must stay updated on any changes to the state’s tax laws, especially those involving digital products. It’s recommended to consult with a tax professional or legal expert to ensure compliance with any 2025 tax reforms.

What penalties could I face for failing to collect SaaS sales tax in New York?

Failure to collect and remit sales tax on taxable SaaS sales can result in penalties, interest, and potential audits. Complying with New York’s tax rules is crucial to avoid these financial consequences.

Conclusion

To recap, is SaaS taxable in New York? The answer depends on the nature of the service. SaaS is generally taxable when it involves prewritten software or associated services in New York. Providers should register for sales tax and ensure they comply with the state’s guidelines. Understanding whether your SaaS product qualifies for taxation is crucial to avoid fines. If you’re a provider, staying informed on this matter is essential. Have you had experience with SaaS taxation in New York? Share your thoughts below!

Author

  • Wayes

    Wayes has been a digital marketer since 2016, SEO, reviewing and affiliate marketing. He has a deep understanding of the digital world and brings that knowledge and experience to SaaS Preview. He is currently an SEO specialist at BHE Uni, Boost Education Service and Digital Marketing School where he’s honing his skills in content optimization and digital growth. Wayes helps users make informed decisions in the SaaS space with research and practical insights.

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