Refund Opportunities on Purchases of SaaS in Specific Industries and Jurisdictions

The Changing Landscape of Sales Tax in the Age of SaaS

The continued changes in the world of software have opened the door to many opportunities for sales tax refunds. The economic benefit of these opportunities can vary depending on one’s industry and location. Generally, a sales tax refund on purchases is driven by the availability of an exemption or if what is purchased is not taxable in the purchased state.

Software as a Service (SaaS) has become an area of confusion because of how most sellers apply sales tax on invoices. SaaS-type services go by many names, including Platform, Desktop, and Information as a Service. One thing that most of these purchases have in common is that the service users no longer need to be in one specific area; they can be located in many different regions of the United States or other countries. That being said, much of the confusion is because sellers usually tax the invoice assuming all the users are located at the “ship to” location.

Industries of Focus

Several industries, financial/banking, insurance, and commercial real estate, purchase a significant amount of these products. One thing these industries have in common is that many employees are located outside the home state but still use the SaaS shipped to the home office.

Jurisdictions of Focus

Two jurisdictions come to mind for a high concentration of these industries, New York City and The City of Chicago. A common factor between these two is the high tax rate associated with doing business. New York City has a sales tax rate of 8.875%, and Chicago imposes not a sales tax but a Personal Property Lease Transaction Tax on what they call Non-Possessory Computer Leases. This rate is even higher at 9.00%—a benefit of being located in these jurisdictions potential for a tax refund on purchases of SaaS.

We’re Here to Help

How to obtain these refunds depends on specific fact patterns and documentation associated with the SaaS purchases. A couple of these are what exactly is being purchased, and where is it used? Once we figure this out, we need to be aware of the refund process in these jurisdictions to obtain the refunds. Source Advisors can guide you through these specifics here. If you have any questions or want more information, do not hesitate to contact a Source Advisors professional. We are ready to assist you with your tax refund claims.

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