Yes. West Virginia taxes SaaS (software as a service) at a rate of 6%. With local taxes added, the average combined tax rate is 6.57%. This tax applies when a seller has nexus in West Virginia (a physical or economic connection to the state — more on nexus in a bit).
This article will explain the basics of SaaS taxability in West Virginia. If you provide SaaS to customers in West Virginia, knowing applicable rules and regulations will help you maintain compliance in the state.
What are West Virginia’s rules for taxing SaaS?
States differ in how they classify SaaS, in terms of taxability. West Virginia does not explicitly mention SaaS in its tax code or regulations, but TSD 445, which addresses the taxability of streaming services, and TSD 442, which addresses marketplace facilitators and goes back to 2019, apply to SaaS and deem it taxable if the SaaS provider has nexus in the state.
There are two types of nexus: physical and economic. A business has physical nexus in West Virginia if it:
- Has an office, warehouse, store, or other place of business in the state.
- Has employees working in the state.
- Owns or leases property in the state.
- Conducts regular business in the state.
- Conducted sales meetings or even attended trade shows in the state.
A business has economic nexus if its annual sales exceed $100,000 in the state or if it engages in 200 or more separate transactions for goods or services in the state in a calendar year.
Many states adopted similar tax regulations in the wake of the landmark South Dakota v. Wayfair, Inc. Supreme Court case. This case overturned the previous framework for determining nexus. It allowed states to set rules whereby certain vendors without a physical presence in the state could be subject to sales tax. Many have adopted thresholds similar to those addressed in that case.
Most municipalities in West Virginia add a 1% sales tax of their own (in addition to the state’s 6% tax).
Sales tax exemptions and exceptions in West Virginia
In addition to rates and nexus, a vendor in West Virginia must also consider exemptions and exceptions. Some that might apply to SaaS are:
- Sales to the federal government, the state, or its institutions and subdivisions.
- Sales to charitable organizations.
- Sales to educational institutions.
- Sales used in research and development.
- Qualifying sales during a West Virginia sales tax holiday.
SaaS generally operates on a subscription model. What about the taxability of one-time digital products? Examples include:
- Downloaded software.
- E-books and audiobooks.
- Music and video downloads.
- Digital artwork and photography.
- Online courses and educational materials.
In West Virginia, these digital products are typically not taxable. However, some streaming services, such as streaming video, are taxable in the state.
An example scenario
Let’s say that Company A, based in San Francisco, offers a SaaS product that costs $100 per month. It had 2,400 subscribers in West Virginia as of the end of August. All of the customers are in municipalities that apply an additional 1% tax. Of these customers, the following are exempt (with necessary documentation):
- 600 subscribers are educational institutions.
- 100 are churches and/or religious institutions.
- 20 are county or municipal governments within West Virginia.
- 25 use the product solely for research and development (R&D) purposes.
How would Company A calculate its sales tax obligation for August in West Virginia?
The company would collect and remit sales tax for 1,655 customers. Seeing as how the company’s sales revenue for just one month is $165,500 in West Virginia, it clearly has nexus in the state, so it would be responsible for collecting 7% of its eligible sales in August and remitting that amount ($11,585) to the relevant West Virginia (state and municipal) tax authorities.
What about compliance?
Growing software businesses should take sales tax compliance seriously, ideally before they’ve reached a non-compliant status. If you have sales tax nexus in West Virginia, you must register with the West Virginia Tax Division. This can be done online or by mailing in a business registration application.
Once you’ve registered, you must begin charging sales tax at the appropriate rate, filing sales tax returns on the proper schedule based on volume, and remitting the taxes wholly and promptly.
You are a monthly filer if sales taxes total more than $3,000 annually, quarterly if they total between $600 and $3,000, and annually if the total is below $600 per year. Taxes are due by the 20th day of the month following the end of the appropriate period. You can remit taxes electronically, by phone, or by mail. You must file electronically the following year if you pay more than $25,000 in a given year.
Interest rates for underpayment of taxes are 13% for 2024. Penalties can add another 25% of the tax due for a late return and another 25% for late payment. Penalties for returns deemed false or fraudulent can reach 50%.
Many SaaS providers can benefit greatly from help navigating the complexities of states’ varying sales tax systems. If your company needs more time or resources to complete all of these steps thoroughly and accurately, consider employing the services of a trusted vendor such as Numeral.
Numeral is an all-inclusive, white-glove sales tax service that offers customers complete peace of mind in managing sales tax obligations and consumes only five minutes of a your time each month — a small fraction of the time required to handle everything in-house.
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Some helpful resources
West Virginia provides many resources to help instruct and educate on sales tax issues. The following are a few that can help you find additional information on the topics covered in this article:
- West Virginia Tax Division website
- Sales and Use Tax Publications
- Remote Sellers and West Virginia Sales and Use Tax
- West Virginia Code - Chapter 11 (Taxation)
Information line: 800-982-8297
Final thoughts
The state of West Virginia considers SaaS taxable for business and personal use and applies a sales tax of 6%. In addition, most municipalities also tax SaaS at 1%.
Sales are taxable if you have nexus in West Virginia, whether physical or economic and the tax applies when the customer is in the state. Some exceptions and exemptions exist, such as if you are selling software to educational institutions.
Beware of penalties and interest applied to late-filed returns or failure to pay the total amount. These charges can quickly accumulate after months or years of non-compliance.
