No. In Georgia, SaaS (software as a service) isn't directly taxable. However, many digital goods are. At the beginning of 2024, Georgia began taxing some digital goods and services, including video games and e-books. Currently, however, streaming video and SaaS are not on the list of taxable products.
If you provide customers with digital goods, consider whether your business has nexus in Georgia. There are two types of nexus: physical and economic.
If you maintain a physical presence in the state (an office, inventory in a warehouse, or employees, for example, you have physical nexus there. A company establishes economic nexus if it completes at least 200 separate retail transactions in Georgia or if its sales revenue exceeds $100,000 within a year.
SaaS taxation rules in Georgia
In general, SaaS is exempted from sales tax in Georgia. However, laws change constantly. The recent tax on digital goods went into effect only at the start of 2024. And many states, including Vermont and Louisiana, just recently expanded their sales tax laws to include SaaS.
The reason remotely accessible software isn't taxed is that Georgia applies sales taxes only to tangible personal property. The state has determined that computer software that's delivered electronically isn't tangible personal property.
These guidelines are based on two rulings, which include LR SUT 2014-01 and LR SUT 2014-05. The rulings indicate that cloud-based subscription services aren't subject to sales tax.
As for digital goods, they are subject to sales tax as long as the end user retains permanent use of the product or service. If the transaction is conditioned on continued payment, it won't be taxed. While the term "digital products" isn't defined, examples are listed in the recent law. The types of digital goods that are taxed include everything from audio-visual works to digital books.
Georgia defines digital audio-visual works as any series of images that are tied together with sounds and impart an impression of motion. The state also lists "other digital goods" that can be taxed, which include the following:
- Audio or video greeting cards
- Video games
- Electronic entertainment
- Newspapers
- Magazines
- Artwork
- Photographs
- Periodicals
Georgia has also stated that it will collect a sales tax on "digital code," which is an activation, enabling, or key code that provides someone with the right to obtain a specified digital good. However, this law doesn't include gift certificates, gift cards, or redeemable cards.
If you sell goods or services that are considered taxable in Georgia, you'll need to review your product’s features and the latest state laws to determine whether you need to collect sales taxes. Compliance depends on local and state tax laws.
Under Georgia law, you don't need to collect sales tax on digital goods when selling to certain types of customers. For example, government agencies, merchants who buy goods to resell, and certain nonprofit organizations aren't required to pay sales tax. Make sure you obtain a resale or exemption certificate from the buyer to validate the exempt transaction.
How local tax rates may apply
To understand how local tax rates can apply to the digital goods you sell, let's say that a customer who lives in Atlanta decides to buy a digital magazine from your online storefront. As long as the transaction allows the customer to have permanent ownership of the magazine, you'll need to collect sales tax (including Fulton County and Atlanta’s combined 5.9% tax).
If the customer is effectively renting the magazine for a week or a month, you don't need to collect tax during the transaction. Georgia maintains a statewide tax rate on digital goods of 4%. However, rates can vary by city or county. In some jurisdictions, the tax rate can be as high as 9%.
Navigating compliance in Georgia
If you have physical or economic nexus in Georgia, you must accurately collect and remit taxes in the state. When selling digital goods, penalties will be assessed if you don't collect, calculate, and remit taxes. The penalty for unpaid taxes is 5% for every month, with a maximum of 25%.
To begin collecting sales taxes on digital goods, register for a Georgia Sales and Use Tax Certificate. Once you receive this certificate, begin collecting sales tax on all taxable transactions. You'll need to file sales tax returns regularly to ensure that the Georgia Department of Revenue receives the funds that you owe.
It will be easier for you to properly remit taxes if you maintain precise records of your tax rates, exemptions, and transactions. To obtain a tax number, register directly with the Georgia Department of Revenue. When earning income, file Form 600, which is the Georgia Corporation Income Tax Return.
If you already owe sales tax but didn't properly collect it, consider taking part in the voluntary disclosure agreement (VDA) program. If the Department of Revenue hasn't called about your unpaid taxes, you may qualify for this benefit.
When you qualify, you may receive a waiver on all penalties. You'll also have a certain amount of time to disclose and pay the previous liabilities. The "look-back period" is usually three years.
Georgia tax laws can be complex, which is why it's a good idea to use Numeral if you own a SaaS or digital goods company. You can use this tool to manage your company's collection and remittance of sales tax. This service will help you maintain compliance with complex tax laws.
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Additional resources for staying compliant
To find the latest tax rates and rulings in Georgia, visit the Georgia Budget & Policy Institute website. They regularly update the website with new tax laws and provisions that can impact residents and companies that do business in the state. The Georgia Department of Revenue website is also a helpful resource.
If you need further assistance with understanding the sales tax laws in the state, the Georgia Municipal Association regularly hosts webinars that discuss legislative sessions and the effects they have.
The bottom line
SaaS products aren't taxable in Georgia. While sales tax is collected on some digital goods, it applies only to services or products that are permanently owned by the purchaser. If your company sells digital goods, you must stay compliant to avoid penalties and late fees. Regularly consult with the state resources linked above to know when tax laws change. If you're seeking efficiency with compliance, consider using tax management software like Numeral.
