Is Software as a Service (SaaS) Taxable in Georgia?

Software as a Service (SaaS) offers flexible, scalable solutions accessible via the internet. The tax implications of these services can be complex and vary by state. In Georgia, understanding the specific rules governing SaaS taxability is important for businesses and consumers to ensure compliance.

Defining Software as a Service for Tax Purposes

Software as a Service (SaaS) refers to applications accessed remotely over the internet, typically on a subscription model. The provider maintains control over the software, including hosting, maintenance, and updates, while users access it without possessing the underlying code or files. This model differs from traditional software sales, where software is delivered on physical media or downloaded for permanent ownership. For Georgia tax purposes, SaaS does not involve the transfer of tangible personal property, providing a right to use or access software rather than ownership.

This distinction is important because Georgia’s sales and use tax primarily applies to tangible personal property and certain enumerated services.

Georgia Sales and Use Tax on SaaS

In Georgia, Software as a Service (SaaS) is generally not subject to sales and use tax. The Georgia Department of Revenue (GDOR) has issued rulings clarifying that these services are not taxable. This position stems from the fact that SaaS offerings are neither explicitly listed as taxable services nor do they involve the sale of tangible personal property under Georgia law.

While SaaS remains non-taxable, Georgia does impose sales tax on certain “digital goods” as of January 1, 2024. This applies to specified digital products, other digital goods, and digital codes when the purchaser receives permanent use rights and the transaction is not conditioned on continued payment. Examples of these taxable digital goods include digital audio-visual works, digital books, and video games. However, because SaaS typically involves ongoing payments for access rather than permanent ownership, it falls outside this taxable category.

The state sales tax rate in Georgia is 4%. In addition to the state rate, local option sales taxes can apply, with combined rates reaching up to 9% depending on the specific county and municipality. Businesses engaging in sales of digital products should carefully assess whether their offerings grant permanent use rights to determine taxability.

Key Exclusions and Exemptions

While SaaS itself is generally excluded from sales and use tax in Georgia due to its nature, other software-related services and specific entities may also qualify for exemptions. Custom computer software, which is designed and developed to the specifications of a specific purchaser, is exempt from sales tax. This exemption applies regardless of the delivery method, provided the software remains uniquely tailored and not mass-produced for general distribution.

Professional services are typically not subject to sales tax in Georgia unless they result in the creation and sale of a tangible product. This distinction is important when SaaS offerings are bundled with services like consulting, implementation, or technical support. If these professional services are clearly distinct and separately stated on an invoice from any taxable software or digital goods, they can maintain their non-taxable status.

Certain organizations may also be exempt from sales tax on their purchases, including some government entities, non-profit organizations, and educational institutions, depending on their specific tax-exempt status. The applicability of any exemption often depends on the exact nature of the service agreement, how the services are structured, and how they are billed. Businesses must maintain precise records of their transactions, tax rates, and any claimed exemptions to ensure compliance with Georgia’s tax regulations.