Sales tax on software subscriptions: which US states tax SaaS and when a small vendor has to register
About 21 states and DC tax SaaS in October 2026, and California and Colorado join on 1 January 2027. The state-by-state table, the economic nexus thresholds after Wayfair, a $49-a-month business with 2,000 customers worked through (it owes Ohio and Maryland, not Texas or New York), what Paddle, Stripe Tax and Stripe Managed Payments cost at $1.18m a year, and the first three registrations a small vendor usually needs.
Take a tool that costs $49 a month, with 2,000 customers spread across the US and nobody working outside the founder's home state. That's $1.18 million a year. Which states does it owe sales tax registrations to? Most founders guess Texas, New York or California, the big ones. None of them, at that size. The answer is Ohio and Maryland, because 70 Ohio customers billed monthly make 839 payments a year, and Ohio still counts 200 transactions as enough to owe it tax.
Every state question comes down to two tests. Does the state tax software sold as a subscription? And do you have nexus there, meaning enough connection that the state can make you collect its tax? Only when both are yes do you register, charge the tax on your invoices and file returns. This is the October 2026 picture of both, with the arithmetic for a real-sized business and what Stripe Tax, Paddle and the app stores change.
Which states tax SaaS in October 2026
By our count of the state rules, 21 states and DC tax SaaS in full or in part. Published counts run from 22 (Kintsugi) to 26 (Anrok) because the edge cases are counted differently: Arizona taxes it as a rental, Chicago taxes it although Illinois doesn't, and Iowa and Ohio tax it for only one kind of buyer. Treat the number as about twenty, and check the rows for the states where your customers are.
Not taxed at the state level today: Alabama, Arkansas, Florida, Georgia, Idaho, Illinois (outside Chicago), Indiana, Kansas, Maine, Michigan, Minnesota, Missouri, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Virginia, Wisconsin and Wyoming. Mississippi and Nebraska are unclear: Mississippi exempts software hosted outside the state according to most summaries but one current table lists it as taxable, and Nebraska has no guidance that names SaaS. Alaska, Delaware, Montana, New Hampshire and Oregon have no state sales tax.
The two big changes on 1 January 2027
California and Colorado both passed laws in June 2026 that bring SaaS into their sales tax from next year. California's SB 122 adds "digital products", SaaS included, to what counts as tangible personal property; streaming, e-books, games and infrastructure services are left out, and the CDTFA proposed emergency regulations in October. Colorado's HB26-1223 taxes software delivered "by any means", remote access included, and exempts custom software and negotiated licences (click-through terms don't count as negotiated). Both are described here from law-firm summaries; the final state rules were still being written when we checked.
California's threshold stays at $500,000, so it is a later registration for most small vendors. Colorado's is $100,000. If you already collect in a few states, add both to your tax settings before January; if you use a merchant of record, nothing changes for you.
When you have nexus
Physical presence has always created nexus: an office, staff, contractors, inventory, even trade-show attendance in some states. A founder or a remote employee working from home counts. Since the Supreme Court's South Dakota v. Wayfair decision on 21 June 2018, sales alone can also do it, once they pass the state's economic threshold. Most states settled on $100,000 a year, and many added "or 200 transactions". The 200-transaction test is going away state by state, but it is still the one that catches small subscription businesses.
Three details change the answer. First, the period: most states look at the previous or the current calendar year, but Texas and Pennsylvania use a rolling twelve months and New York the last four quarters. Second, which sales count: in most states it's all your sales into the state, so even sales that aren't taxable push you toward the threshold; Florida, Missouri, New Mexico, North Dakota, Oklahoma and Arkansas count only taxable sales. Third, the start date once you cross: it ranges from immediately to months later.
Worked through: $49 a month, 2,000 customers
Spread 2,000 customers by each state's share of the US population (Census estimates for July 2024), bill them $49 a month, and you get $588 and 12 transactions per customer a year: $1,176,000 and 24,000 payments in total. Here are the states that matter.
No state's dollar threshold comes close: the biggest single state, California, is at $136,000 against $500,000, and it doesn't tax SaaS until next year anyway. The two registrations come from the transaction test in states that tax SaaS. In Ohio the tax applies only to business customers, at 5.75% plus the county rate; in Maryland, 6% for individual use and 3% for software used in a business system. Michigan and New Jersey also pass 200 payments, but SaaS isn't taxable there, so there's nothing to collect.
Bill the same customers once a year and the picture changes: 70 payments in Ohio, 37 in Maryland, nothing crossed anywhere, no economic-nexus registration at this size. One caveat is that states don't all define whether each monthly renewal is a separate transaction. Counting each charge is the common reading among practitioners and the safe one, but it isn't written down state by state.
When do the dollar thresholds start to bite? Divide each threshold by the state's share of your customers. With customers spread like the population, these are the total US revenues at which each state's threshold is reached:
Your customers won't be spread like the population. A product for law firms will skew to New York and California, one for oil-field crews to Texas. Run the same division with your own billing addresses: export a year of payments from your billing system, total revenue and count payments by state, and compare.
The first three registrations, usually
1. Your home state, if it taxes SaaS. Physical presence beats every threshold. A founder in Austin, Philadelphia, Columbus, Seattle or Boston has nexus at home from the first sale; so does a company with one remote employee in a taxable state. Stripe's registration service won't file for states where you have physical presence, so this one is usually done by hand on the state's website.
2. Ohio and Maryland, if you bill monthly. Both tax SaaS and both still have the 200-transaction test. Seventeen monthly customers in a state make 204 payments a year. DC, Hawaii, Rhode Island, Vermont and West Virginia work the same way but have fewer people, so they come later.
3. Pennsylvania, on revenue. The first SaaS-taxing state whose $100,000 threshold a population-spread business reaches, at about $2.6 million in total revenue. Washington follows at about $4.3 million, and with it Washington's B&O tax on gross receipts above $100,000. Texas and New York, the states founders worry about first, come much later than they think.
App stores, merchants of record and Stripe Tax
You can also avoid registering at all by not being the seller. App stores and merchants of record are the legal seller to your customer; they register, collect, file and pay, and you get a payout. Stripe Tax is different: it calculates and collects, but you remain the seller and register yourself.
For the $1.18 million example, here is the yearly bill each way. Direct on Stripe means US card pricing of 2.9% + 30c and Stripe Billing at 0.7% for subscriptions; Stripe Tax Basic is charged only on the Ohio and Maryland sales ($62,745); filings are assumed monthly in both states.
Going direct saves about $19,600 a year here, and the gap grows as more states need registrations: each new state is another set of filings, and from California's threshold onward, many more. What the merchant of record also buys is EU VAT and UK VAT on your foreign sales, fraud screening and someone else answering the tax letters. For a founder outside the US the decision often makes itself (see below). Stripe Managed Payments is the most expensive route on these numbers because its 3.5% sits on top of the normal fees, though it is the easiest switch for a business already on Stripe Billing.
Registering and filing
Registration is free in most states. The ones that charge remote sellers, per Stripe's state list: Arizona $12 plus $1 to $50 per locality, Colorado $16 per location plus a $50 deposit, Connecticut $100, Hawaii $20, Indiana $25, Nevada $15 plus a security deposit, South Carolina $50, Washington $50 plus $5 per trade name, West Virginia $30, Wisconsin $20, Wyoming $60. You need the business address, an EIN and the owners' details.
The cheapest route into many states at once is Streamlined Sales Tax. One free registration covers any or all of its 24 states (23 full members plus Tennessee), and for remote sellers registered only because of economic nexus, the states pay a Certified Service Provider (Avalara, TaxCloud, Sovos, AccurateTax or Avior) to calculate, file and remit for you at no charge. Ohio, Kentucky, Washington, Utah, Vermont, West Virginia, South Dakota, Rhode Island, Iowa and Tennessee are SST states that tax SaaS. Maryland and Pennsylvania are not in it.
After registering, the state sets your filing frequency (monthly, quarterly or yearly) from the tax it expects. Late filing costs real money even when no tax is due: Texas charges $50 per late report, plus 5% of the tax if it's 1 to 30 days late and 10% after that.
If you should have registered already
States would rather have you come forward. Under a voluntary disclosure agreement you pay the tax and interest for a limited lookback, and the state waives some or all of the penalties. Through the Multistate Tax Commission you can stay anonymous until the agreement is signed; 38 jurisdictions take part. Tax you collected from customers and didn't pay over is never covered.
Washington also runs a penalty-relief program for the services it newly taxed from 1 October 2025: penalties (not tax or interest) are waived for periods up to 31 December 2026 if you apply by 30 September 2027. Some states, Virginia, Pennsylvania and Louisiana among them, won't take a voluntary disclosure from a business that is already registered for the tax, so disclose before you register, not after.
Selling from outside the US
The thresholds apply to foreign sellers exactly as they do to American ones; no state exempts a seller based abroad, and tax treaties don't cover state sales taxes. Commentators note that collecting a state assessment from a foreign company with no US assets hasn't been tested in court, but that is not a plan. The practical obstacle is paperwork: state registrations ask for an EIN, and Stripe's registration service wants an EIN plus an SSN or ITIN for the owners. That is why most non-US founders selling to Americans use a merchant of record or an app store, which collect for them; Google says its collection applies even to developers outside the United States.
If sales tax pushes you to change how you bill (annual plans, or a price that now has tax added on top), our free trial or free plan article has the conversion numbers, and the federal side of a software company's tax bill is in Section 174 is fixed. Disputed card payments are their own cost line: see chargebacks at a small SaaS.
Adding tax to the bill is a price change for consumer customers. Work out how many you can lose before a higher price stops paying for itself, with grandfathering and lock-in, over 12 months. Runs in your browser.
Open the price increase calculatorThis is how the rules read in October 2026, not tax advice. Thresholds and taxability change every year; check the state's own page before you register, and talk to a sales tax adviser before a voluntary disclosure.
Sources
Taxability: Texas Comptroller on data processing (96-259) and local rate for remote sellers (Jan 2026); New York TB-ST-128; Pennsylvania on canned software; Ohio taxability FAQ; Iowa on software; Maryland Technical Bulletin 30 and 2025 updates; Connecticut SN 2019(8).pdf); Washington ESSB 5814 and penalty relief; Arizona ruling and Eide Bailly on TPR 24-1; KPMG on Louisiana; Sales Tax Institute on Chicago's 15% (Dec 2025); K&L Gates on California SB 122 (Oct 2026); PwC on Colorado HB26-1223; state tables from Kintsugi, Numeral (Oct 2026) and Anrok.
Nexus and rates: Sales Tax Institute economic nexus guide (as of 1 Aug 2026) and rates chart (as of 1 Nov 2026); TaxCloud on Kentucky's 2026 change; Census Vintage 2024 state population estimates (arithmetic ours).
Sellers and tools: Stripe Tax pricing and pricing explained; Stripe on registering, state fees and start dates; Stripe Managed Payments pricing; Paddle pricing; Lemon Squeezy pricing; Apple Schedule 2 exhibits (Aug 2026); Google Play on US sales tax. Registration and disclosure: Streamlined Sales Tax and free CSP services; Texas penalties; MTC voluntary disclosure FAQ; Sphere on lookback periods; Avalara and RSM on foreign sellers.