Navigating Tax for IT Services and SaaS

The digital transformation that powers modern business also brings a tangle of new sales and use 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 that states have taken vastly different approaches to taxing software and IT services. For example:

• Ohio taxes essentially the flow of information from one computer to another via the internet under the category of "electronic information services."

• Maryland imposes a 3 percent sales tax on a broad range of IT and data services, including computing infrastructure, data processing, web hosting, and software publishing, with the tax base significantly expanded as of July 1, 2025.

• 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.

Please select this link to read the complete article from OSAP Mission Partner CSH Business Advisors.