Skip to Content
Call Us Today! 866-458-7966

New Mississippi Sales Tax Law Clarifies Computer Software and SaaS Treatment

colorfully lit computer keyboard

The Mississippi state legislature passed SB 2449 this summer, which provides some clarity for how the Department of Revenue will tax common computer-related sales. While the law expressly includes certain digital products within the state’s sales tax, it also carves out a unique exemption that could apply to certain out-of-state, internet retailers. We have the details of SB 2449 below and how its impact on Mississippi’s sales tax for computer software could apply to you or your client’s business.

What Digital Products Are Now Subject to Mississippi Sales Tax?

SB 2449 Section 6 adds to the existing Mississippi sales tax structure by including within the definition of taxable property the following items under Mississippi Code Section 27-65-23:

  • Computer software;
  • Computer software services; and
  • Certain digital products and other electronically-delivered items (e.g., music, games, reading materials, and ring tones).

Businesses with qualifying sales are subject to the state’s 7 percent sales tax on the gross income from these activities. However, the new definitions also state several important exceptions for computer-related items that are not considered taxable software, services, or digital products. They include:

  • Sales for the use or right to use computer equipment, infrastructure, platforms, servers, and devices, including PaaS or laaS.
  • Services for information and data processing
  • Services performed through the use of a computer or software program
  • Banking and payment processing services
  • Internet access charges
  • Real estate listing services
  • Electronic advertising and marketing services
  • Social media services

SB 2449 Establishes an Exclusion for Internet-Accessed Software Maintained Out-of-State

Mississippi’s new law affirming the sales tax for computer software, services, and digital goods is not inconsistent with other states that are updating their tax codes to keep up with modern business. Yet, SB 2449 offers a unique exclusion for online retailers in an era when state revenue departments are aggressively seeking collections on out-of-state retailers with any connection to their tax base.

The bill amends Mississippi Code Sections 27-65-7 and 27-67-5 to exclude as taxable the retail sale or use of computer software maintained on a server located outside the state and only accessible via the internet. The new language implies that many software sales to Mississippi customers, including SaaS business models, from out-of-state retailers could be exempt from sales tax. A potentially important distinction is if the software is exclusively accessible via the internet. In other words, sales of software in Mississippi that are downloadable or accessible offline could still be taxable. Depending on the nature of your software business model, SB 2449 could provide tax savings for internet retailers or Mississippi customers on the purchase of internet-accessed software located outside the state.

5 Steps for Moving Forward as a Software Business with Sales in Mississippi

Mississippi’s new rules toward the sales and use tax of computer software and related goods or services is a chance for businesses to review their compliance strategy moving forward. Taking the time to get clarity on how these rules apply to your operations could limit the potential for surprise assessments and could prevent missed opportunities with credits or refunds.

  1. Determine Nexus and Consider Registration or VDA Needs

Software companies located outside of Mississippi should check their recent sales history to see if they have economic nexus under the current threshold. Businesses that exceed the $250,000 gross sales threshold in the prior 12-month period likely have an obligation to register for a seller’s permit and remit sales tax. If you’ve had economic nexus or will have it because of the state’s new rules of computer software sales, now could be the time to weigh options, such as a voluntary disclosure.

  1. Identify Taxable and Nontaxable Sales of Computer Software and Related Goods or Services

After evaluating nexus, identify the status of past and future sales of computer software and services to determine their taxability. While most computer software and digital products are taxable, you may provide them in conjunction with nontaxable services (e.g., information processing) or you may provide them in a way that excludes them from tax (e.g., internet access only).

  1. Review Sales Contracts and Invoicing for Compliance

Verify that your understanding of the taxability of your products and services aligns with what’s stated in any invoices or contracts used. With software and SaaS products, you may have separate SaaS licensing agreements and other agreements that could affect how Mississippi or other states view these transactions for tax purposes.

  1. Take Advantage of Opportunities to Apportion Tax on Combined Sales

A common area to refine contract or invoicing practices is to take full advantage of Mississippi’s rules allowing for the apportionment of sales tax on combined transactions under the amendments to code section 65-27-23. Specifically, those involving sales that are both inside and out of Mississippi. A common example is selling a software license to a business whose employees or personnel plan to use it in multiple states. Without a clear and reasonable apportionment in place, you could risk the Mississippi Department of Revenue assessing exempt out-of-state sales.

  1. Self-Audit for Potential Savings with a Mississippi Sales and Use Tax Refund or Credit

Mississippi’s new rules clarifying sales tax on computer software went into effect on July 1, 2023. Conduct an audit of your recent sales, tax reporting, and remittances to the Mississippi Department of Revenue. Out-of-state businesses and online retailers could have possible refunds for sales that were nontaxable. Likewise, Mississippi business that previously paid use tax on computer software or service purchases from out-of-state could also be eligible for refunds.

More questions about how sales tax on software and SaaS works in Mississippi or another state? Schedule a free consultation today.

Share To: