Is SaaS Taxable in Tennessee?

Yes. SaaS (software as a service) is taxable in Tennessee in many situations. Businesses that are transacting with customers in Tennessee must collect and remit sales if they have nexus.

By

Nate Matherson

Nate Matherson

Head of Growth.

Nate is the Head of Growth at Numeral. He has founded multiple venture-backed companies and is a two-time Y Combinator Alum. He is based in Charleston, SC.

Reviewed by

Charles Purdy

Charles Purdy

Editor.

Charles works closely with a Numeral team as a freelance editor. He ensures that our guides and tutorials are easy to read and helpful. Previously, Charles served as Managing Editor at Carbon Health and worked as Content Manager at Adobe. He is based in San Francisco, California.

Published: April 23, 2026

Products Taxed

• SaaS
• Digital Goods

Nexus Thresholds

• Sales: $100,000
• Transactions: N/A
• Physical? Yes

Sales Tax Rates

• Tennessee: 7.00%
• Average Total Rate: 9.55% (Local Rates Apply)

According to the Tennessee Department of Revenue, all computer software is considered equal regardless of how a person accesses the software. In other words, software that is purchased and downloaded on an end user’s device is treated the same, under Tennessee tax law, as software that is accessed via a subscription.

Why is understanding taxation on SaaS in Tennessee important?

As a growing software company, understanding Tennessee sales tax laws will help you stay in compliance and avoid complications. Failure to stay in compliance could lead to unpaid taxes, resulting in penalties.

It’s also important to understand how sales tax is calculated and remitted in Tennessee, which requires confirming the buyer's location due to Tennessee’s destination-based sales tax system, adopted on July 1, 2024. This applies to the sale of services performed on tangible personal property and computer software.

Understanding sales tax on SaaS helps build trust with customers by providing accurate billing statements.

What does taxability mean for SaaS in Tennessee?

In Tennessee, software that stays with the seller and is made available to customers is taxable. Any company that meets Tennessee's nexus threshold selling SaaS is required to collect sales tax from customers.

Additionally, custom software is taxed in Tennessee, unlike in neighboring states.

Defining SaaS and understanding its unique characteristics

SaaS applications are hosted in the cloud rather than downloaded to end user devices. Examples include email tools, office productivity tools like Microsoft 365, payroll software such as QuickBooks or Gusto, and marketing platforms like Hubspot and Salesforce.

Taxation rules in Tennessee

Sales tax for SaaS products varies from state to state and is subject to change. Nexus is typically defined as a physical presence or a certain economic threshold (in Tennessee, $100,000 in sales or 200 transactions).

Are there exemptions or exceptions?

SaaS is generally subject to sales and use tax under the state’s Revenue Modernization Act. Exceptions include nonprofit organizations, government entities, and educational institutions, or if a valid resale certificate is provided.

What about digital goods?

According to the Tennessee Department of Revenue, other digital goods subject to sales tax include digital audio-visual works, digital audio works, digital books, downloaded software, and digital codes.

How local tax rates may apply

Tennessee has a state sales tax rate of 7%, with some local jurisdictions applying additional sales tax. The average combined rate is 9.55%. For example, if a SaaS provider sells a subscription for $500 in Tipton County, they should calculate and add the state tax of 7% and the local tax of 1.5217%, totaling $543.

Importance of accurate tax collection and remittance

Correctly calculating, collecting, and remitting taxes on SaaS products is crucial. To ensure compliance, businesses should:

1. Determine economic nexus based on sales or transactions.
2. Establish physical nexus presence in Tennessee.
3. Register with the Tennessee Department of Revenue for a Sales and Use Tax Permit.
4. Collect and invoice the sales tax on transactions.
5. Report and file TN sales tax returns using the appropriate form or TNTAP.
6. Keep detailed records for audits.

The bottom line

Understanding SaaS taxability in Tennessee is essential as laws may continue to evolve. Many resources can help with best practices on calculating and remitting appropriate sales tax. Companies like Numeral can assist in managing tax obligations effectively.