No. SaaS (software as a service) sales aren't currently taxable in Virginia. Sales of digital goods and cloud-based products are also not subject to sales tax in the state. That being said, Virginia’s Joint Subcommittee on Tax Policy is actively discussing the financial impact of implementing new taxes on software and digital goods.
Virginia taxes only sales of physical goods and certain services. The statewide base tax rate for taxable products is 5.3%. Local jurisdictions in Virginia (such as counties) may add additional sales tax to taxable purchases).
If you sell taxable products to customers in Virginia, you must identify whether your company meets any of the state's nexus thresholds. If it does, you'll need to collect taxes on those sales (more on nexus later in this article).
Keep in mind that tax laws change frequently. To ensure that you remain in compliance with applicable laws and to avoid potential financial or legal consequences, you should stay informed about tax laws in all the states where you do business.
SaaS taxation rules in Virginia
Sales tax laws vary from state to state. SaaS is typically sold via a subscription or pay-for-use model, and Virginia doesn't tax this kind of remotely accessed software. However, many other states do, and Virginia lawmakers have proposed taxing digital products in the past — so this is something to keep an eye on if you do business in Virginia.
Specifically, in October of 2024, Virginia’s Joint Subcommittee on Tax Policy met and discussed the financial impact of taxing digital downloads, including software, eBooks, music, and videos.
The financial impact for Virginia could be significant if they enact new taxes on software products. This meeting came after Virginia Governor Youngkin had previously looked to close the “tech tax loophole” and to modernize the state’s tax codes.
States like Vermont and Louisiana have very recently enacted new laws to tax SaaS.
Staying compliant with sales tax laws
As mentioned previously, SaaS taxability laws vary considerably from state to state.
If you sell digital goods and SaaS solutions, maintaining compliance with these laws is very important. If you fail to collect required sales taxes and remit funds to the correct authorities, you could face audits, significant penalties, and even legal issues. The first step to compliance is tracking nexus.
In most states, companies can have physical and/or economic nexus.
A company has physical nexus in a state if it has a physical presence there, such as an office, inventory in a warehouse, or employees.
A company establishes economic nexus in a state when it earns above a certain amount in revenue or has a certain number of sales there. In Virginia, the economic nexus threshold for taxable goods is $100,000 in annual revenue or 200 transactions. If you have nexus in a state that taxes SaaS, you'll need to collect taxes from your customers there.
Staying compliant nationwide
If you have nexus in a state, you must also know how to accurately collect and remit taxes there. Staying compliant nationwide will also help you adapt quickly when tax laws change. The specific steps you need to follow depend on the state, but these are the typical steps:
In most cases, companies need to register for sales tax permits. If you have nexus in a state like Virginia, you must obtain this permit. Once you've received your permit, begin collecting sales tax immediately. This revenue needs to be collected on every taxable transaction.
But before you collect taxes for digital goods and SaaS, you should know that some states provide specific companies with exemptions that allow them to purchase products without paying taxes. For example, many states exempt government agencies from paying sales and use taxes.
Once you collect the necessary taxes, you'll need to file a sales tax return. Businesses are tasked with filing these returns monthly, quarterly, or annually. The frequency usually depends on a company’s sales volume. When you file a return, make sure you report the taxable sales and total sales.
You'll then need to remit the sales tax you've collected from customers and clients. If you don't pay taxes by the due date, interest charges and penalties will likely be assessed against your company.
If you have customers in many states, managing all of this can quickly become complex and time-consuming. Using a software tool such as Numeral to handle sales tax compliance can save you time and help eliminate risk. You can even integrate Numeral with your current technology stack. Numeral provides 24/7 live support, consistent sales monitoring, and efficient tax collection for all 50 states.
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Additional resources for staying compliant
Staying compliant with state-specific tax laws is easier when you keep your eye on the latest changes regarding tax rates and rulings. In Virginia, consider using the Virginia Department of Taxation's website. A section of the department's website is dedicated specifically to “Business Resources”: it can help you maintain compliance. Consider signing up for email updates via the website. You'll be notified when the state's tax laws have been changed.
If you need additional resources to ensure that your company remains compliant with Virginia's tax laws, you can reach the state's tax professional hotline at (804) 367-9286.
The bottom line
Virginia doesn't tax SaaS software or digital products. However, the idea has been discussed in the past, which means that the state might eventually expand its laws regarding SaaS taxability.
If you establish nexus in Virginia, make sure you stay compliant with the state's tax laws. Consult with the Department of Taxation's website and other state resources to avoid interest charges and other penalties. Using tax management software like Numeral can help you stay compliant while spending much less time on the complexities of managing sales tax.
