Is SaaS Taxable in Texas? 2025 Guide
Yes, Texas taxes SaaS. Texas classifies SaaS as "data processing services" under TX Tax Code §151.0035, making it subject to sales tax at 6.25% (state rate) plus local taxes up to 8.25% combined.
Quick Reference
What Triggers Texas Nexus?
You have sales tax nexus in Texas if you meet either of these conditions:
Economic Nexus
If your Texas sales exceed $500,000 in the preceding 12 calendar months, you have economic nexus and must collect Texas sales tax. Texas does not have a transaction count threshold—it's revenue only.
Physical Presence
- Employees: Any employee working in Texas creates nexus, including remote workers
- Contractors: Independent contractors who solicit sales or perform services on your behalf may create nexus
- Property: Inventory in Texas warehouses (including Amazon FBA) creates nexus
B2B Exemptions
Texas offers exemptions for B2B sales, but they are not automatic. To claim an exemption, your customer must provide a valid Texas resale certificate (Form 01-339) or exemption certificate.
Without a certificate on file, you must collect tax—even if your customer is a business. The Texas Comptroller audits certificate compliance aggressively.
What Texas Considers Taxable
- Data processing services
- Software as a Service (SaaS)
- Cloud computing services
- Information services
- Web hosting with data processing elements
What's Exempt
- Internet access services (when separately stated)
- Professional services with incidental software use
- Custom software development services (not canned software)
Enforcement
The Texas Comptroller is known for aggressive enforcement. They actively audit SaaS companies and have dedicated resources for identifying out-of-state sellers with Texas nexus. Back-tax assessments can include interest and penalties going back several years.
Already Got a Texas Audit Notice?
If the Texas Comptroller has contacted you, don't panic. You have options. Here's what to do:
- 1.Don't respond immediately. You typically have 30-60 days. Use that time to gather facts.
- 2.Assess your actual exposure. Use our tool to understand your nexus triggers and which sales were actually taxable.
- 3.Consider professional help. For assessments over $50K, a tax attorney typically pays for itself in negotiated reductions.
- 4.Negotiate. The initial assessment is rarely final. Interest can sometimes be abated, and penalties are often negotiable.
Haven't been contacted yet?
Texas offers a Voluntary Disclosure Agreement (VDA) program. If you come forward before they find you, you get: limited lookback period (typically 4 years), waived penalties, and a structured payment plan. This is almost always better than waiting.
Check If You Have Texas Nexus
Answer 5 questions about your business to get a personalized nexus analysis for Texas and 9 other states.
Start Free AnalysisHow to Register
If you have Texas nexus, you must register for a Texas sales tax permit before collecting tax.
- Authority: Texas Comptroller of Public Accounts
- Timeline: 2-4 weeks for permit approval
- Filing Frequency: Monthly, quarterly, or annually based on tax liability. Monthly if >$1,500/year, quarterly if $500-$1,500/year, annually if <$500/year.
Sources
- Statute: TX Tax Code §151.0035, §151.0101
- Official Guidance: Texas Comptroller Publication 94-127
- TX Comptroller Rule 3.330 (Computer Hardware and Software)
- TX Comptroller Rule 3.342 (Data Processing Services)
- TX Tax Policy News (ongoing updates)
- Last Verified: 2025-12-21