Yes, SaaS is taxable in Texas. The state categorizes it as a taxable data processing service, which means most cloud-based and subscription-based software is subject to sales tax. Businesses selling SaaS to Texas customers must register, collect, and remit the appropriate taxes. This guide explains how to stay compliant and avoid costly mistakes.
2025 SaaS Sales Tax Rates for Texas
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Tax Rates
| Category | Rate/Details |
|---|---|
| Statewide Base Rate | 6.25% |
| Average Combined Rate | 8.20% |
| Local Tax Rates? | Yes |
Nexus Thresholds
| Threshold Type | Requirement |
|---|---|
| Sales Volume | $500,000 |
| Transaction Count | N/A |
| Physical Nexus? | Yes |
Products Taxed
| Product | Taxable? |
|---|---|
| SaaS | Yes |
| Digital Goods | Yes |
| Other Digital Products | Contact us |
Is SaaS Taxable in Texas?
Yes, SaaS (Software as a Service) is taxable in Texas. The state considers SaaS to be a taxable data processing service subject to state and local sales tax. Texas imposes an 80% exemption on data processing services, meaning only 20% of the charge for SaaS is taxable.
Sales Tax on Software in Texas
Texas imposes sales tax on digital and software services based on their classification:
| Product/Service | Taxable in Texas? |
|---|---|
| SaaS (Remotely Accessed Software) | Yes (20% taxable) |
| Custom Software (Built for a Specific User) | No |
| Electronically Delivered Software (Prewritten) | Yes |
| Downloaded Software (Prewritten) | Yes |
| Subscription-Based Software | Yes (20% taxable) |
| Digital Goods (E-books, Music, Movies, etc.) | Yes |
Texas applies a partial tax exemption to data processing services, reducing the taxable amount to 20% of the total charge.
How to Know if Your Product is Taxable in Texas
To determine if your SaaS or digital product is taxable in Texas, consider the following factors:
1. What type of product are you selling?
| Product/Service | Taxable in Texas? |
|---|---|
| SaaS (Remotely Accessed Software) | Yes (20% taxable) |
| Custom Software | No |
| Electronically Delivered Software (Prewritten) | Yes |
| Downloaded Software (Prewritten) | Yes |
| Subscription-Based Software | Yes (20% taxable) |
| Digital Goods (E-books, Music, Movies, etc.) | Yes |
2. How is your product delivered?
- If it is remotely accessed (SaaS), it is taxable, but only 20% of the charge is subject to tax.
- If downloaded software, it is fully taxable.
- If it is custom-built software, it is not taxable.
3. Are there any exemptions?
- Custom software is not subject to sales tax.
- Resale transactions may qualify for an exemption if properly documented.
- Certain business use cases may allow partial or full exemptions.
Texas Sales Tax Rates for SaaS and Digital Goods
Texas applies a statewide base sales tax rate of 6.25%, with local jurisdictions adding additional sales tax.
| Tax Category | Rate |
|---|---|
| State Sales Tax (Base) | 6.25% |
| Local Sales Tax (Varies by location) | Up to 2.00% |
| Average Total Sales Tax | 8.20% |
Simplify Texas SaaS Sales Tax Compliance with Commenda
Texas sales tax rules for SaaS are confusing and time-consuming. Manual calculations, shifting nexus thresholds, and missed filings can lead to penalties, audits, and operational delays. Commenda helps you avoid costly mistakes.
- Automated and accurate sales tax calculations tailored to Texas rules
- Real-time nexus tracking so you know exactly where you owe
- Effortless, expert-led tax filing—no spreadsheets or guesswork
- Multi-state compliance from one reliable, integrated platform
Focus on growing your SaaS business, Commenda handles the complexity of sales tax compliance.
FAQs About Texas SaaS Sales Tax
1. Is cloud-based software taxable in Texas?
Yes, SaaS is taxable in Texas, but only 20% of the charge is subject to tax.
2. Do I need to collect Texas sales tax if I sell SaaS but have no office there?
Yes, if your sales exceed $500,000, you must collect and remit sales tax.
3. What is the tax rate on SaaS in Texas?
The state sales tax rate is 6.25%, but local taxes apply, bringing the average total rate to 8.20%.
4. Are digital goods taxable in Texas?
Yes, most digital products such as e-books, music, and movies are taxable.
5. How can I ensure compliance with Texas sales tax laws?
Use a sales tax automation platform like Commenda to track nexus, calculate tax rates, and file returns.
