Does Missouri charge sales tax on Software as a Service (SAAS) subscriptions?

Plain-English summary

The Missouri Department of Revenue ruled that a Software as a Service (SAAS) company located outside Missouri does not owe Missouri state sales tax on its SAAS agreement with a Missouri customer.

Section 144.020.1, RSMo, imposes sales tax on sellers engaged in the business of selling tangible personal property or rendering taxable services at retail. Missouri Code of State Regulations Section 12 CSR 10-109.050(2)(I) specifically provides that the sale of software as a service is not subject to tax. Because Applicant's SAAS agreement does not result in a taxable sale of tangible personal property, the Department concluded the transaction is not subject to Missouri state sales tax.

What this means for you

SAAS and cloud-software businesses selling into Missouri

If your company sells Software as a Service to Missouri customers, this ruling indicates those subscription fees are not subject to Missouri state sales tax, because 12 CSR 10-109.050(2)(I) treats SAAS sales as falling outside the taxable sale of tangible personal property. This holds regardless of whether your business is located inside or outside Missouri, since the ruling turns on the nature of the transaction (a service, not a sale of tangible personal property) rather than the seller's location.

Accountants and tax professionals

This ruling is a clean, short confirmation that Missouri's regulation -- not just general sales tax statute -- directly addresses SAAS: 12 CSR 10-109.050(2)(I) states plainly that "the sale of software as a service is not subject to tax." When advising clients who sell or buy SAAS products used in Missouri, cite this specific regulatory provision rather than relying solely on Section 144.020.1's general definition of taxable sales.

Common questions

Q: Is Software as a Service (SAAS) taxable in Missouri?
A: No. Missouri Code of State Regulations Section 12 CSR 10-109.050(2)(I) specifically provides that the sale of software as a service is not subject to tax.

Q: Why isn't SAAS treated like a sale of tangible personal property?
A: Section 144.020.1, RSMo, imposes sales tax on sellers of tangible personal property or taxable services at retail. Because a SAAS agreement does not result in a taxable sale of tangible personal property, it falls outside that taxing provision, and the regulation confirms it is not subject to tax.

Q: Does it matter that Applicant is located outside Missouri?
A: The ruling describes Applicant as a SAAS company located outside Missouri with a Missouri customer, but the Department's reasoning rests on the nature of the SAAS transaction itself, not on Applicant's location.

Q: Can another SAAS company rely on this ruling?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and law remain unchanged. Another company should confirm its facts match those described here and consult a tax professional before relying on this result.

Citations and references

Statutes and regulations:

• Section 144.020.1, RSMo (sales tax on sellers of tangible personal property or taxable services at retail)
• 12 CSR 10-109.050(2)(I) (sale of software as a service is not subject to tax)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8250

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your communication of May 3, 2023.

The facts as presented in your letter ruling request, along with independent research are summarized as follows:

Applicant represents that it is a Software as a Service (SAAS) company located outside of Missouri.

ISSUE:

Is the Applicant's SAAS agreement with a Missouri customer subject to Missouri state sales tax?

RESPONSE:

No. Applicant's SAAS agreement is not subject to Missouri state sales tax.

Section 144.020.1, RSMo, provides that a "[...] tax is hereby levied and imposed [...] upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state."

Section 12 CSR 10-109.050(2)(I), provides that the: "[...]sale of software as a service is not subject to tax."

In this instance, the Applicant's SAAS agreement does not result in the taxable sale of tangible personal property.  Therefore, the Applicant's SAAS transaction is not subject to state sales tax.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford